Anyways, look at the contract – unless it says you are liable to replace with new, you should only pay the value of the (secondhand and well used) frame, not replacement as new.
Dunno about that. Our hire contracts (not bikes) say if the equipment is damaged then the client is liable for the repair or replacement cost, and the hire cost until it’s fixed. So if you hire something for a week, and drop it on day one, and it takes a month to get the replacement then you pay a weeks hire + months hire (because you have effectively got two items for that week) + the value of the kit.
So I can imagine the hire company is thinking ~£1k for a new frame is a lot cheaper than charging the OP for the repair cost, workshop rate to strip and rebuild it, shipping etc and the hire charge whilst it’s there.