Had it not been for this misrepresentation or negligence, I would have not purchased a ground rent leasehold property.

The 1% in year 3 is negligible to most scenarios and is written in as a cost to cover when sold or refinanced. 

Ok, so an LLC won't protect you from negligence.

The fire insurer is not entitled, as subrogee, to bring an action against the tenant to recover for amounts paid to the landlord for fire damage to rental premises caused by the tenant’s negligence in absence of express agreement between the landlord and tenant to the contrary.

I missed about 7 weeks of rent on the 2 units (it's a duplex), lost 1 tenant who - because the unit wasn't 100% ready like it was supposed to be - decided not to move forward, and was at risk of losing the other tenant because his move in date kept getting pushed off, had to live without water once he did move in, and dealt with a lot of disturbances all due to this contractor and his negligence to just finish it on time. 

I question weather the tenants were trully negligent in this case.   

Not reporting to IRS: Tax evasion - might not seem like a big deal since it's such a negligible amount, but sooner or later you might have to submit your tax records for another big purchase, and the added income stream will need to be verified. 

Yes it can be useful in the event of a non-resident being injured on the property due to negligence by the tenant.

As protection from both parties, the company can dissolve or a member involuntary withdraw if there is negligence, failure to perform ect.

The effect on your return will range from negligible to significant depending on how the deal is underwritten, assuming you are working with an experienced team.