The contract only states that all improvements/repairs are at the tenant/buyers expense. Installing an in-ground pool will, however, increase the landlord/sellers property insurance. Can this added cost be passed along to the tenant/buyer?
You really should consult a local attorney. First of all, ambiguities in any lease or contract are construed against the drafter. If you provided the tenant with a lease/option agreement without specifying whether repairs or improvements could be made and what kinds of repairs needed your consent, then your tenants may have a good argument that they can install a pool at their own expense.
This opens the floodgates to all kinds of problems. What happens if these people do not exercise their option to buy? You're now stuck with a pool you didn't want.
DISCLAIMER: Brandy A. Peeples is licensed to practice law in the State of Maryland. This answer is being provided for informational purposes only and the laws of your jurisdiction may differ. This answer based on general legal principles and is not intended for the purpose of providing specific legal advice or opinions. Under no circumstances does this answer constitute the establishment of an attorney-client relationship. For legal advice relating to your specific situation, I strongly urge you to consult with an attorney in your area. NO COMMUNICATIONS WITH ME ARE TO BE CONSTRUED AS ARISING FROM AN ATTORNEY-CLIENT RELATIONSHIP AND NO ATTORNEY-CLIENT RELATIONSHIP WILL BE ESTABLISHED WITH ME UNLESS I HAVE EXPRESSLY AGREED TO UNDERTAKE YOUR REPRESENTATION, WHICH INCLUDES THE EXECUTION OF A WRITTEN AGREEMENT OF RETAINER.
I am assuming that these documents were prepared by a real estate agent and not an experienced Real Estate Attorney. The good news is that if the buyer does not buy, you have a pool. The bad news is the same. You need to have an attorney review the documents thoroughly to see what protections you have before the project begins, because an increase in insurance may not be your biggest problem.