Cancel Lease Prior to Move-in Due to Uninhabitable Rental Unit

My sister and family signed a month-to-month lease to rent a house. On the day they were to move-in, the house was inhabitable. The stove was not working, there was a dead mouse in the bathtub, there was poison bait outside the house, etc. On the following day, the management co. rep did repair the stove, but the house was not cleaned of the mice and was quite dirty. My sister states the unit was unlivable and asked to be released from the lease, which was granted. However, the management co. wants to keep the security deposit, stating that they lost one months rent. The house has been vacant for at least 8 months. The lease provides for this within five days of signing. Can the management co. keep her security deposit?