I would return to sender "no longer at this address".
I do have some sympathy, as in our area, you can't apply for a place from an address you will be living in in the future, you have to be living in it at the time you apply. A woman my DC1's DD did a sports class had this issue. She was renting near Outstanding School A, and buying a house near Outstanding School B. She called up and explained she wouldn't be living near school A when her DD started school, or even by the time the offers were made - she was moving in the february.
The council explained that "sales fall through" and they've had people pull the "well, we were going ot move but the sale fell through" after putting down the other address. So she applied to both schools from her old address, was given a place at Outstanding school A. She was told she could go on the wait list for places at school B from the April after the offers, but then while she was now living well within the area they had offered places to, not enough people turned down their place and she didn't get a place before the September start (when she decided she wasn't prepared to move her DD once settled).
But when she accepted the place, she got a lot of stick from the school and other parents who thought she'd played the system, she was worried at one point they'd take her place at school A away but still not give her a place at school B.
So the previous owners might well have correctly applied in the October when the applications started, but then not managed to change the address, or just didn't. In most areas, they only have to prove they were living there over the time the applications were open, and they will have documents to back that up for October. Moving subsquently wouldn't lose them the place in many areas - I think you were lucky though, I know many parents who stalled house sales until after January to avoid this situation, you might have found your chain slowing for months if they hadn't been prepared to take the risk!