Should I replace siding on a house while tenants are occupying the unit?
as opposed to what?
Could this be some sort of violation and the tenant brings me to court? If not, I will explore a little bit more into this and then start the project. I don't want any problems and the siding is rotting away.
if it was a violation of something... that something would be in your lease.
I will assume you have not been a landlord very long and have not bothered to read/learn your state landlord tenant regulations.
You own the property, you have not only the right but the obligation to maintain it. You give your tenant 24 hrs notice to do work and proceed to do the work. Provided it is done during reasonable day time hours your tenant has no grounds to complain. If you have a difficult tenant that is not happy you can either tell them you will let them out of their lease after the work is completed or simply tell them to pound salt.
Do not for any reason ever offer any tenant any money as compensation.