WP Rugby will have to cover at least 30% of the cost of the 168 private suites being built at their new Cape Town Stadium home ground.
Last week, the union began marketing the suites by inviting fans to "live the suite life".
"As part of the agreement with WP, the city agreed to build the suites," Cape Town deputy mayor Ian Neilson told Rapport newspaper. "The contract, to the value of R250 million, is underway. The suites must be completed by early 2021."
WP Rugby will have to repay the city at least R75 million of this amount, with interest, over a 25-year period.
Following the conclusion of the Currie Cup in January, the union will move its headquarters from Newlands to Cape Town Stadium.
The Cape Town Stadium will also be known as DHL Stadium from 1 January after WP Rugby's headline sponsor acquired the naming rights.
Meanwhile, negotiations between WP Rugby and potential investors MVM Holdings have hit another roadblock.
According to Rapport, MVM's Marco Masotti left South Africa on Saturday and returned to New York.
A controlling share is a non-negotiable aspect of the $6 million (R92 million) investment, but it is believed that WP Rugby still refuses to agree to it.
Informed sources told the Afrikaans publication there was only a "10 to 15%" chance that the investment would be implemented.
- Compiled by Sport24 staff