Board Game Arena

I assume this won't happen online, but it came up in a real life game I played.

Someone drew the tile where the entire tile is just a city.

The previous turn someone closed the only open city so the city tile could not be placed anywhere.

We just decided to have them draw a new tile, but is there a proper rule to deal with this situation for next time?

That is the official rule. See the rulebook page 5 in Summary -> Placing a Tile:

In some very rare cases, it may be impossible to place the tile. In those cases, simply return the tile to the box and draw a new one.

Importantly: The failed tile does not get returned to the bag. It leaves the game. The BGA implementation does this correctly. No worries.