1. Firstly, an agreement is binding even if only oral. Accordingly, your mother in law, can enforce an agreement to update the house if this was what was agreed, provided she continued to pay the rent in relation to the house. I know you say you only "discussed" this. But be aware that a court could enforce this agreement. Secondly, an owner of property can always sell their property if they so wish. However, in this situation, you would have to sell it subject to the existing tenant, your mother in law, remaining in place, as you will not be able to eject her if you bought the house at an undervalue to provide her with a home. This might affect the value which you get for the house.
2. I would suggest that if relations get difficult that you engage in mediation to work out a solution, as legal fees involved in a row will leave everyone much poorer. YOu have a big weakness as you were sold the house at an undervalue to provide a home for your mother in law, so in law, you have an equitable obligation to provide a home for your mother in law with this.