Is this actually better handled as a sublease and should we void the addendum and instead sign some sort of sublease acknowledgement and send that to the prior tenants?

If they are not, you may want to mandate those "bad" tenants be removed prior to closing. 

You have to approve any lender to check your credit prior to them doing a hard inquiry and if you do, those inquiries stay on your credit report for TWO years.  

Both cases issues were not bought to landlords attention prior to inspection to give tenant a benefit of doubt.Please suggest who needs to bear the cost as window replamemt might be an expensive cost.Landlord is trying to sell the property and feels condensation issue if reported at early stage, could have been taken care of by proper re-seal or tradesmen advice.Given advance notice on A/C situation, issue would have been fixed rather than showing up in inspection reports.

Prior the 1970s I have heard and seen that building permits et all were somewhat "loose" as they say.  

Second (actually it should be first), you should get pre-approved for the Refinance loan prior to purchasing a property.  

At a minimum we do yearly inspections (prior to renewing).

This is why your situation is tricky because you're working with a deal you made prior to getting into REI it seems.

Evaluate worst case and insist that there's still money to be made.However, managing for myself, I did get ~35% expenses for over a decade and this is while I was catching-up from prior owner's deferred maintenance.

The house does have air conditioning and a gas furnace.I'm trying to decide whether to repaint them or replace them prior to my 1st tenant.