Turning a land grant into conquest: how would you handle this?

Background: my players accepted a quest to wipe out a hobgoblin lair (specifically Dakabog from Lairs & Encounters) in exchange for the rights to the land the hobgoblins were occupying/pillaging.  The offer was to make them landholders but not governors (as drawn from Axioms 3).  The parcel of land in question is about 8 or so 1.5 mile hexes or close to half of a 6 mile hex, all civilized-tier.  It's somewhere between 1/3rd and 1/2 of the land of the baron who lost it to the hobgoblins.

Now, the players are conniving types and have already floated the idea of taking the land and going ahead and being governors of the region as well.  My first instinct is to run it as an occupation, but there are two problems with this:  

first, occupations are normally done on a "per domain" basis.  It doesn't seem too unreasonable to simply treat this as a smaller sub-domain and simply do all calculations relative to the smaller region.

The more challenging problem is that occupation is said to end when the defender has no forts.  Here's where I am contemplating what to do.  I may just fiat that there was a small watchtower the baron's troops were hiding in when the hobgoblins came, or at least a small town. The alternative would mean either A) the players instantly conquer the parcel of land or B) they have to take out the baron's structures which essentially means the scuffle spreads to the entire domain.

In either case, I expect the baron to attempt to appeal to the Contessa, which will be it's own series of things to concoct, but the occupation of a subset of a "friendly" domain is the main thing I'm trying to work out.

I would probably rule that since the PCs aren’t slaughtering people in the town who oppose them (at least, I assume they are not), to just use the occupation rules.

I’d make the relative domain morale rolls every season; since the PCs are the only ones with troops there, that should get them being paid all the taxes pretty fast, which seems reasonable to me if there are no enemy fortifications or troops. I would then split the taxes between the two based on their relative domain morale scores until the PCs had reached a high enough level (probably about +2), when I’d say they just get them all.

(If the PCs are willing to be ruthless conquerers, then yeah, they instantly conquer it, because who’s stopping them?)

yeah, Domains at War says that occupation = you get the taxes (and the responsibility to pay costs). 

I'll probably use the morale scores as an eventual endpoint: letting the original owner's morale score drop to -4 means they have it for real if he doesn't acquiesce any earlier.  I might also make a small tower for them to siege if they want to make things happen more quickly without diplomacy.