They should be able to provide rent and prevent maintenance. 

This will alert the owner that he/she is being fined and he/she will most likely take action to prevent multiple fines.

If the appearance of being in an LLC prevents one law suit it is well worth the cost but it may not ever prevent a law suit. 

To be honest, on over 100 building permits last year in the City of Chicago, with many of them having some form of enclosed porch, I think only 2 were ever mentioned by the Department of Zoning where they brought it up as a "Concern" which led us on a wild goose chase of finding and sharing information, overally causing unnecessary delay to the permit review process and eventually coming to a close (some positive, some negative).

Why take unnecessary risk and kick the can 5 years down the road?

Adequate heating is essential for comfort and to prevent moisture-related issues.3.

Make sure you have a detailed scope of work signed by the contractor to prevent disputes.

I would also consider the possibility of raising the property as well to prevent further flood damage. 

How are they incentivized to prevent move-outs? 

I'm not trying to prevent him from making money as much money as he can, but something seems off with such an arrangement, that primarily results in him effectively keeping 67.5% on most deals.