Am I being too conservative in the budget for expenses and what might some of you might recommend.

My objective is for both parties to be treated fairly so that we can grow our partnership with mutual benefit for years to come. 

If you are reframing everything, might as well do it correctly and run your double joists from party wall to party wall, properly hang your headers on the double joists, and sister/replace the remaining joists.

If he changes insurance the lender will be notified and possibly call the loan.It does have a line in leases that lessor has the right to give 90 day notice if home is sold, at which time lessee must acknowledge and be out in 90 days unless agreement by new owner waives this right's well as a line if any legal action be brought by either party the prevailing party shall be reimbursed for all attorney fees and costs. 

Total Equity conservatively speaking is $135,000.I own a 4 unit that I used an FHA loan for 3.8% and I have to pay PMI through the life of the loan (around $79 per month).

A landlord may say, "not my problem", but in some circumstances the IRS can collect taxes from you or fine you if the receiving party didn't pay them. 

When you throw in the fact that these are likely conservative figures and you also get a place to live, it makes sense to pull the trigger.

I also manage a couple other Airbnb's for investors and I typically run numbers based on a 75% occupancy which is conservative for my market.

How should I structure contracts with lenders in order to keep it fair for all parties involved?

Title companies are independent third parties.