Then contact city with those documents, as well as your lease that states this area is not for “living”.

Otherwise, liability insurances should work, for a beginning.

Any recommendations for insurance on a 3 family in Rhode Island ?

I recently purchased a property and purchased landlord insurance.

if you are mailing them a letter, make sure to use ADDRESS SERVICE REQUESTED to insure you get their current address in case they have moved on.https://pe.usps.com/text/qsg300/Q507.htm

Then you can blame the lease when something unexpected happens.The lease/rents will be based on a portion of common area expenses, like the property insurance and taxes, the occasional re-seal the parking lot, seasonal sidewalk clean-up and roof maintenance; plus the upkeep of the tenant's space - spell out who will maintain the furnace and who will pay the plumber when the toilet backs up?

I say this as someone who made a title insurance claim within a month of buying my very first home.This is always true in general; in your case if you are acquiring from distressed/motivated sellers even more so.

That would be separate documents regarding their interest in the property based on their investment. 

Do you have to also pay 'mortgage' payments to someone else, insurance, the utilities OOP?

Just a bilateral agreement that specifies:The giver of the option, or optionorThe receiver of the option, or optioneeThe purchase priceThe term (start date and end date) that the agreement will be in effectThe consideration (typically a dollar amount) paid by the optionee to secure the right to buyPLUS whatever else your attorney thinks is necessary.Make the document recordable by your county clerk, get it signed (and possibly notarized), and then have it recorded on public record.The intent is to ensure that if he tries to sell to anyone else, a title search will find this agreement and trigger a title defect.