Thane Stoneshield,
Some time I'd like to learn more about Dwarven Law from you, as it seems to rely more on trust and honor and such things good, than a careful weaving of the written word that may, inevitably, trap even the writer. For now, my assesment of your concerns:
You must engage in re-negotiation of the contract to have the Order of the Penitent Heart removed. Councilor Fryar did not forward the statement, so I had nothing to give a revised contract copy any weight. I have no power over the contract; I simply wrote it, understand it, and can interpret it for you.
You have no literal contractual obligation to pursue the Chosen or other flying/floating creatures into the depths of Dunwarren, although you must perform activities which look into their nature. This has been met by keeping accurate records of how they are engaged in combat, what abilities they possess, and how best to defeat them.
Defense investigation clause
The Holders have a responsibility to maintain documents regarding activities on the Property, including but not limited to investigation of the creatures known infest the area.
As no followup investigations have been launched by a pair of Watch officers, they cannot revoke the lease in this way.
Representative's evaluation note
If the Representative reports that the Holders have failed their evaluation criteria and this is confirmed by a followup investigation by the Representative and two accompanying Watch Sergeants or Lieutenants, the lease on the property may be revoked at will of the Watch with one tenday's notice with which to remove possessions from the Property.
Unfortunately, there is one other provision to the highest-ranking officers of the Watch, the Sheriff and Lieutenants.
Watch Sheriff and Lieutenants rights
If a Lieutenant or the Sheriff of the Watch provides valid reason at any time, the contract may be found null and void or brought up for negotiation. Ten days will be provided to remove possessions from the Property.
Lieutenant Fawkes must, however, allow you ten days notice before voiding the contract. He should specifically state that he is, in fact, voiding the contract, before your ten days are provided to recover your things.
I'm afraid I see no way out of this. Perhaps appealing to the Council, that the loss of the Penitent Heart and the deaths of those citizens are not valid reasons to void the contract, may deter Lieutenant Fawkes. The chances of this succeding are slim at best for a number of unpleasant reasons.
Best of luck to you.
Varlam Nikitovich
18 Marpenoth 151
Post Script: Lieutenant Fawkes uses some incorrect references to the contract (there is no need to "renew" the contract, for example). Unfortunately, I see nothing that indicates he is working outside the bounds of the contract. Being an officer of the Watch, he is permitted to enter the property at any time.
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or that all law enforcers be accompanied by an officer of the Watch or Operative-level member of the Spellguard.
Sergeant Marshall defended this provision; though at the time, Fawkes wasn't even a member of the Watch. Even if he were and that influenced this contract, it would probably have been extended to Lieutenants, the rank of which he's reached.