Need advice... 

TLDR:  What to do about a tenant who is now my direct competitor on AirBnB ?

Long:

I bought an AirBnB property with 2 rentable units:  a 1-bedroom MIL cottage, and a 3-bedroom custom home, in a small, seasonal vacation rental market, i.e., no room for additional competition in the market.

A local family had a medical emergency and needed to move out of their own brand-new home due to possible environmental poisoning.  A friend recommended this family to me as a possible full-time tenant.  I felt sorry for them, so I allowed them to rent my property at roughly $5000 per year lower than my AirBnB income.  I figured it was mutually beneficial:  They get a safe home, and I have "caretaker" through the winter.  I even offered to pay the wife if she wanted to help clean the AirBnB for some extra income.  They said they were excited to help with my AirBnB.

The day after we agreed they would rent from me, they informed me they would be listing their own home on AirBnB to help them with expenses while they have their home listed for SALE.  They said, "We're hoping to learn from you so that we can list our home on AirBnB and earn some income while it's on the market."

This didn't sit well with me.  It didn't sound like the full truth.  Imagine owning a restaurant, offering to give someone a job as manager due to their family's hard times, then have that manager say, "Thanks for the training, now I'm opening a restaurant across the street that is identical to yours!"

I met the husband and wife, separately, for the first time last week after they'd been in my house for 1 week.  I asked the husband if they intend to be in the AirBnB business?  He said, "no, absolutely not; they intend to sell their home and that will be the end of their AirBnB hosting experience."  I then proposed that they list their home under my account so that the ratings/reviews on our two properties would enhance each other's property, which would result in increased bookings for both of us.  My listed property (the MIL unit) is a 1-bed cottage, while their house is a 3-bed custom-built home, so these are not directly competitive properties.  However, my 3-bed custom home is virtually identical to the home they have on the market, that they now have on AirBnB.  The husband agreed this would be a good idea, and mutually beneficial, and said he would talk to the wife.

I then met the wife, and I didn't speak with her about my idea to list their home under my account because we had more pressing things to discuss and her husband was scheduled to talk with her about it.  She and I talked about our mutual love of real estate, and about how fun it would be to work together on some house-flipping or rental projects in the area.  The wife said, "We could buy more properties and do more AirBnBs."  To which I said, no, there isn't enough of a market in this area for more AirBnBs, and we would only end up competing with ourselves, so we have to stick to rentals or flips.  That was 7 days ago.

3 days ago, I formally emailed them my proposal about listing their house under my account.  The wife replied that she has already listed their house and they have multiple bookings so it's too late now.  I replied that it's not too late and explained how to re-list under my account while still accommodating their bookings, and then close her account.  She didn't reply.  At all.

I then heard from my cleaning lady that the wife assumed listing under my account would mean *I* would get all their money.  I have only talked about the benefits of sharing ratings/reviews, not about taking or sharing their money.

• (Of course the money for their house would go to them!)

24 hrs later, the husband replied:  "We don't feel it would be wise for us to mix our ownership with outside management of our home especially with it continuing to be on the market among other things."   

• ("Among other things"??  Of course they would be responsible for managing their home rental.)

I now feel like these people are not being honest with me. I feel like they are both lying to me, and that they do intend to get into the AirBnB business and become permanent competitors for a very limited vacation rental market in this small, seasonal town.  I feel like they are taking advantage of my compassion and generosity, and essentially scamming me for lower rent while they make the extra $5000 income that I gave up by renting to them.

Additionally, just since I met them - in the last 7 days - they have:  Disabled the security cameras on the property, asked my electrician to change light bulbs in their bathroom, moved furniture into MY AirBnB unit on the property w/o telling/asking me or my cleaning lady, unsuccessfully attempted to remove the bidet from the bathroom, and told my cleaning lady that she needs to raise her rates to me!  And they have only been in the house for 2 weeks!

My gut is screaming to cut these people loose and get them off my property ASAP.  It's a small market, and I don't want to make enemies in town, but I can't allow them to undermine my business relationship with my cleaning lady, or take advantage of my generosity, or potentially steal my AirBnB guests for their future reservations, etc...

So, I wanted to see if anyone sees a solution that I'm not seeing?  Thoughts?

• A) Discontinue renting to them and go back to AirBnB immediately.
• B) Raise the rent substantially and do a 6-month lease through winter (non-tourist season), then end it.
• C) Get over it, continue to rent to them, and hope for the best.  (They said they would like to rent from me for 3-5 years.)
• D) Other????

Thank you for any advice!