My thought is that I'll allow him to break the lease as long as I find a suitable tenant to replace him with and there is no loss of income. apparently he has someone who might be interested in taking over the lease. 

Finding a suitable tenant.I wouldn't rent to anyone that I needed that much from.

Your Option 1 - Tenants who are breaking their lease should put some effort into finding a suitable replacement for themselves. 

I call employers, references and previous landlords and if all checks out and the applicant in all regards is suitable I pull the credit check.

Regardless, I think he's on my side and is trying to help broker the peace.Per a conversation with the building inspector, re-routing the downspout into another drain and capping off the driveway drain will be a suitable fix.

Instead of him finding a suitable replacement (which I had agreed) he offered to pay 3 months of rent (his part) if I take the responsibility to find a replacement.

The overwhelming advantage of allowing pets into the property is that it increases the pool of potentially suitable renters. 

I could either pay a visit or send a letter.What do you recommend?

If not, then what are you using to gauge the suitability of each tenant?

Oh, will your insurance pay should a visitor get bitten by that dog!!!