Steps to reproduce:

1) Download attached project 'LODGroupTest.zip' and open in Unty.
2) Open scene 'LODGroupTest' and press Play.
3) Press the key '2' in number row on your keyboard to force the LODGroup into a lower LOD state.
Note: Tree switches to lower LOD model
4) Select any Game Object in Scene view.
Note: The LODGroup takes back control, and switches back to the automatically calculated LOD level.
5) Press key '2' again on your keyboard to regain control and force it into a low LOD state.
6) Press key '3' on your keyboard to disable the LODGroup, and '3' again to re-enable it.
Note: The LODGroup has again taken back control, displaying the automatically calculated LOD level.

To see actual result check attached gif 'LOD.gif'.

Reproduced with : 5.2.4f1, 5.3.6f1, 5.4.0f1, 5.5.0a3.