I have travelled internets for hours. Apparently terrain shadows are turned off by default because they're unstable and buggy. I had to find a different way of having my alley dark. First I tried to put VisArea. I knew it's only meant for interiors but no one ever said I shouldn't have it outside. It soon turned out the option affects brushes only. I wasn't able to place it properly. I crashed the engine couple of times. I dropped the idea, but since I already learnt how to use VisArea, I placed it around my cave/house and it worked out really nice.
As for the alley, I built a set of cliffs in Max and decided to blend them in with my environment. I have my shadows and I also have more detail and control over how I want everything to look like.
Cliffs still need some adjusting. I need to lower and flatten the terrain above them. Also add grass and the rest of textures (normal and specular maps).
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I decided to make the house wonky and of irregular shape.
It's big enough and fits almost perfectly with the terrain. I think I may need to adjust the size later on.
Thanks to VisArea I am able to change the colour of ambient shadows inside. Without this volume everything would be somehow affected by the sun. Cryengine isn't very good with interiors.