Cumehtar summarized the problem well. There's one point I want to comment on:
Cumehtar wrote:What I think we need here is for Max to post the rules of his Empire, those additional rules he needs it to work as a project, then agree on the territories where these rules would work. And a word from Max that he would not extend his area with additional rules too near other player's projects and houses. If Durima can't be neatly divided in 'free' and 'imperial' zone, it should be established as 'imperial outpost' or whatever, where we would be able to either follow 'imperial' rules or not, as we wish.
I think the "territories" aspect is one that is causing some of the confusion here. Protection of areas is a technical means to ensure that builders can be reasonably sure that their buildings are not modified by other players without their consent. It is no real estate! It is just there to protect what you did build or are going to build in the near future. Without trying to place or dig something, but just passing through, nobody can find out who "owns" a local area (ok, issuinig the chat command would technically be possible but is rather complicated; and not everyone has debug mode on). Thus it is not practical to make special rules for certain areas for non-inhabitants.
Most towns have their own set of rules. Those usually repeat what is common sense and are more or less a re-wording of the server rules (basically "be nice to each other and respect each other"). Some additional rules cover the necessities of a city - that is, how to get new areas to build on, how the borders are marked and so on. Other rules are not even stated but followed anyway because the players want to build a good-looking town (i.e. using a similar style for the buildings). The job of the "land owner" is to manage the area and give subownership to players who want to build there. This may include a selection - not every building might fit everywhere.
Thus, new players coming to Max' town and asking for a building space there can consult the rules for that town and either agree to them or build elsewhere with for them more agreeable rules. That applies to the town as such and not to any protected area. It can not be retrospectly applied to people who moved to a town they considered abandomed. And new rules could only be set up with the agreement of the inhabitants who contributed to the town.
Empires are about territories. Expansion may be an integral part of them. But the technical function of protecting areas is not suited for that purpose. The empire and the area it covers can only exist in the imagination of those who decide to play along and participate. To all others, the special rules of the empire plain simply do not apply. It is up to each player to decide if and how far he/she wants to participate in Max' empire. The "borders" can then be anywhere - including towns whose builders are completely ignorant of them. The borders and rules will only be relevant for those players who are intrested in them. They do not mean that Max has any jurisdiction or privileges apart from those every player has. This also means that players who state that they do not want to participate are not insulted, asked to move out or threatened in any way.
What Max builds there and how he treats his..er..inhabitants is not bad as such. From what I understand, building space is sold, yes. If the players agree to that it's ok. Didn't seem particulary expensive (rather a symbolic price). The "wages" for services done seemd rather high in comparison :-) The town offers new players help and building space. Some players seem to enjoy the RPG very much. That's good! It's a game and ought to be fun. Just remember that it ends when other people are treated badly and that following a leader may be easy but does not relief you of your responsibility for your actions.
I suggest to treat Max' RPG the same way as PvP: It's ok if both players agree and not ok if one doesn't want to participate. That leaves margin for errors - missunderstandings, people changing their mind etc - but once the error is detected by the erring party that one ought to try to correct the mistake.
[Edit]Davidpace is right. I just don't usually publish that because women are sometimes treated differently and I want neither disadvantage nor advantage.
[Edit2] And yes, Max seems to really care about his inhabitants. As I said, there seems to be more given than taken :-) Now if the "empire" could become some great RPG that's fun even for the non-participants and thus gain new participants that would be great! But those not participating have to be treated better than in the past. If necessary, drop out of your role and tell people that you didn't mean it the way they understood! There is so much space on the map that we can all build :-)