Tenant signed a lease then backed out claiming a broken verbal agreement.?

Tenants signed a 6 month lease and paid rent + dpt. Lease was signed while house was being reconditioned. The prior tenants smoked in the garage and the oder was present inside the house. The tenants were concerned about the oder when they signed the lease. I reassured them that the home would be clean and in good condition when they move in 6 days later. I did everything necessary to remove the oder and not just cover it up. The day prior to moving in the tenants revisited the house and said that they were still not satisfied. I felt it was acceptable. I offered to readdress the issue they agreed. I consulted a professional he recommended a treatment. After the treatment the house was oder free and the garage smelled like a garage. I contacted the tenants and they refused to return to the house. The husband said the wife was never going to be happy with it and that he would like to unwind the lease and get there money back. I said I would consider it and get back to him. Sick and tired of renters I consulted with a management company to release the property. The property management co. gave the house a clean bill of health and confirmed that the house was move in ready. The tenants gave me written notice and a requested there funds back. When I explained that he was still under contract and once the house released I would be willing to refund his money less any cost due to the breach. Now in an effort to get all of the money back he and his wife are claiming that we had a verbal agreement to refund and cancel the lease if the smell was not satisfactory. The lease does not reflect this nor did make such an offer. Now it's a case of he said she said. With the tenant threatening legal I have discontinued all contact and asked that everything be done in writing.... What to do???