The plain reality is that anyone can use the assets to make anything they like *if* it doesn't break copyright. If the dev made the assets they'd be locked. If they didn't, they're open. If AWAM uses free and paid assets, the use goes to the maker of the paid assets. However, most don't retain or even try to retain ownership after sale that's likely a non-factor.
Point being, if AWAM isn't/cannot be copyrighted there is nothing L&P can do about fan art being made or even sold. Nothing. Not a single thing.
Outside of copyright law and exact ownership/entitlements, Patreon would have the most say in the matter. It would be to them (or whatever site hosted the works) to decide who "owns" what.
Outside of copyright, it ultimately rests in the respect the dev and fan art creators choose to give each other.
Personally, if I make fan art and a dev asks me to stop I would ignore them. At most I would change the names and use the same models. Not due to being an asshole but due to there being zero real ownership in the situation.
However, I would never try to sell my fan art based on another's idea. I respect the basic, person-to-person sense of idea and ownership enough to not try to profit off of it. If doing so and asked to stop I would oblige.
So if a user was making fan art with assets and ideas that aren't copyrighted it's a free-for-all. What can and can't be done is up to the people's respect for each other and maybe the hosting sites.
If it's copyrighted, you can't use whatever specific aspect is copyrighted. It's not difficult and if no copyright applies, L&P politely asked him to not sell the works based in AWAM and I think that's a fair request. That appears to be it. He didn't ask him to stop entirely or not use any derision of his work, just to not sell it (by paywalling it). I think that's the least a fan art creator should adhere to. Make it for free for the fans of the main work it's coming from.
Personally, I am surprised by the claims that Westpod sold its renders! Where do you get this from?
He published everything here absolutely free!
According to the logic of some AWAM lovers, it turns out to be a very wrong situation in that if you draw renders, then you cannot have your own patreon!
If Westpod did not publish his works here, like all other artists, for free, then I would have exactly the same opinion! This is wrong and you cannot do it! It's not about copyright, it's about respect for the creator of AWAM!
But the fact of the matter is that Westpod published all his work related to AWAM here! He did it right away without any delay!
Moreover!
When the L&P figured out the situation, he allowed Westpod to continue his work, but to my great regret, Westpod is a touchy guy.
Westpod took offense at those who decided that he was drawing AWAM renders in order to make money, and not because he liked AWAM!
Therefore, we will no longer see his wonderful works on the topic of AWAM and I believe that all of us and AWAM are losing because of this.
Probably someone's envy or jealousy of the work of the Westpod has clouded their brains and they cannot understand that it is not about money! There are things that are more valuable than money.
The good news is that there are still many wonderful artists, whose work makes the expectation of the update not so difficult.