Hey DVL,
So having tessellation on foliage is going to be resource intensive. The greater the density you paint with the tessellated mesh, the more expensive it will be render the scene. As you suggested, I would definitely look into have a LOD1 that transitions relatively close to the player so that only the tessellated meshes are the closest.
Is there a reason you need to have tessellation and displacement on your foliage instances?
Thank you,