The agreement can be whatever you want, just like an online advice :) However, for taxation purposes, this idea of @Carl Fischer will not work without modification.

not necessary to do anything. you can if you want and can handle it with a note modification agreement that you can produce yourself ..

Also, you have to have written into the Option and into the Lease that the seller will allow you or your assigns to make modifications to the property and what happens if those modifications are not completed or faulty.

This behavior modification is the result of the virtual guarantee that if they do not pay the rent, they will be out on the street in less than 28 days.

Some things they consider acceptable....moving in grown children and their live in partners, pets without landlord permission,  modifications to unit without permission, bringing in curbside cast off furniture containing bed bugs etc.........Finding regular tenants that pay on time will be far less work and stress than S8.Additionally inspections can be a major pain.

Also what you are proposing is not a "full reno" but more like a basement finish with some modifications.

This week I am meeting with one of the top loan modification experts in the country (through a mutual acquaintance). 

As far as asking for damages, you would need to review your contract and any attorney modification letters. 

What does YOUR contract say about purchase price, settlement date, modifications, default? 

They may be willing to work with him, and perhaps do a loan modification.