In the event this is not sent to the manager, the manager may withhold from owners’ rents.

Legally, you should be right to withhold until re-rented.

You don't get to sign off on a contract, then withhold the right to end it at will.  

It just makes it better for you to have documentation in the event they decide to take any type of legal action or attempt to withhold rent by stating that the unit is not habitable.

When you withhold from the deposit just make sure you have documentation on every item and provide an itemize list within your states required time frame.

So, after months of this ongoing process, IF you've been able to collect all of this evidence, your landlord HASN'T remediated the problem after conclusive findings and adequate notice, and you DO have grounds for breaking your lease (in writing, including your findings, of course...because I doubt your lease has a withholding clause that is in YOUR favor)- you could then take said findings to small claims court in an attempt to convince a judge of such.

They make up ideas that seem to give them permission to withhold rent for one reason or another.

As soon as they folks realize you are going to withhold some or all of their deposit, they are going to go nuts.  

I believe they need to put rent in escrow if they withhold it. 

Tell your tenant he is responsible for all costs associated with the flood, if he decides to leave withhold his money and tell him you will take him to small claims court for all additional costs.