When they delete later the tenant (it typically runs for 90 days only!) and they want to reuse their custom DNS domain in another tenant then the old DNS name is still attached to the old deleted tenant! And they can not attach it to the new tenant anymore.
But this can be fixed!
Here is how this works:
1. The old tenant is somehow deleted but not really completely. This means:
2. Login to https://admin.microsoft.com with your custom name: e.g. admin@contoso.com still works. Same with Azure portal. But you can not use any services from it. Also the licenses are removed for the users.
3. Navigate to: SETUP -> Domains
4. Notice the M365x1234567890.onmicrosoft.com name!
5. Logout
6. Login again with the admin@M365x1234567890.onmicrosoft.com - use your DNS name you noticed from your tenant instead!
7. Navigate again to: SETUP -> Domains
8. Click on your custom domain name e.g. Contoso.com
9. Now you see in the top menu the option to delete it.
10. Follow the instructions (e.g. which include to move the custom DNS mail addresses back to the Microsoft generic DNS entry)
11. Voila you have your custom DNS back for using somewhere else!
12. Now you can exit the admin portal.