Though most peasants would consider the local ruling authority to be a royal pain in the backside, the reality is that without a Town Hall to administrate a growing settlement, it will likely remain a stagnant den of iniquity. Also, in town or cities with Town hall or above you can recruit unlimited number of Diplomats.
Building Town Halls are essential to cities, as they keep Squalor low. A Town Hall helps maintain law and order, as well as reduce squalor. Town halls are buildings in Medieval II: Total War.
