If they withhold rent for any reason, Michael still is obligated to pay that mortgage. I wonder if the mortgage has any relationship to the fair market rental of the premises. If it's greater, Michael may be getting a good deal in return for his trouble. Or, if the purchase price is lowered in consideration for allowing the sellers to stay, that also makes the deal worthwhile. But if the mortgage is substantially close to the fair rent and Michael also has to pay for his own apartment, I don't see this deal as a smart one.
Insurance is the key to peace of mind.
Liability for a slip and fall by the post man, a tree falling on the neighbors' property, direct damage to the house and its contents are all Michael's responsibility, unless provided otherwise in the lease. In any case, there should be insurance coverage. Finally, Michael must remember that the biggest tax benefit comes in establishing his home as his primary residence. To do this he must make it so for at least three out of the five years before he sells it, or for two consecutive years. This arrangement will delay the running of the clock.