Yes, I agree -- this is not how I work and in most cases I would suggest that you do not agree to this type of contract. But there are some legit reasons to do it this way.
Sounds like an inexpensive site made from templates (or customized templates) run by a proprietary back end. With something like this you could get a lot of good features quickly and relatively cheaply. And it would be pretty impossible for them to just give you a copy of it if you want to go somewhere else. Another reason they may be doing it this way is that they are charging next to nothing for the design and they recoup it in hosting.
The downside to this sort of site is that, however little money you sink into it, you've lost it if you are unhappy. And even though you may have access to a lot of features, because they are not custom made for you, they may not work exactly how you want them to.
I'd only consider it if you really trust this company and they are giving a great product that serves all your needs for a good price. It could be a great way to get a site up quickly when you can't afford something custom.
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