I clear area but no town is buildable because npc has built a town on its border so 9 tile rule is in effect. I had to attack npc faction and raze his city to be able to complete quest. Not sure if this is a bug as there is a work around. Just figured I'd write it up in case you didnt intend this as it doesnt entirely make sence to capture a built city and raze it just to start a new though I guess the quest completion does give you access to significant resources.
