They cancelled the lease after they saw the sign on the door "Lame Horse No Riding." The sign imo was rather sensational or overkill.
The OP also sounds like they maybe aren't all that pleasant to talk to (immediately cancelling the lease?). That being said, it is very reasonable that the owner of the horse made it clear to not just the OP and his wife that the horse was not to be ridden at all (like it has already been said, OP's wife was not rational with jumping this horse), but to everyone who walked by and saw the horse, in case the OP's wife decided to ignore the lameness, and other people saw her riding and could alert the actual owner, etc.
ORRR, even more simply, perhaps they couldn't get ahold of them to tell them that they had checked the horse again and decided it should not be ridden and wanted to make sure it was known before the wife tried to ride again. My bet is that the OP is leaving out a lot of the interaction that had gone on, and admittedly has a lot to learn about horses. OP: I don't think you've done anything of malice, but just of not knowing better. I completely agree that you should not lease a horse whose performance you are not pleased with, but before jumping into something so blindly again (pun intended): PLEAAAAASSSEEEEE, you and your wife find someone knowledgeable that you get along with and like who can teach you about horses from the ground up! If your wife had enough experience to jump, she should have had enough experience to know better.