Change in legal lessee, but same tenants

[Jessica Long]

We have a situation where the current tenants have been renting through a temporary housing agency (they had an insurance situation where they needed temporary housing). They are listed as the tenants, but the temp housing agency is the actual one who signed the lease. They want to extend their lease (they will be the tenant and legal responsible party) and insurance won't pay, so they will be the full tenant/legally responsible party. First, the deposit we have was from them and it is the same amount, so no change is needed. Do we need to legally give it back to them (and then recollect it) and act like we are signing a new tenant, with new lease agreement etc...We are definitely making a new lease agreement, but not sure about the security deposit or how to handle current damages. If there are damages, do we collect now and repair or wait until the end of their tenancy. I don't want to cause unnecessary conflict now if they are going to be staying in the home a while longer. However, I don't want legal issues later. I expect they will lose some of their security deposit based on the last inspection.