Hiya!
Paladins detect demons. If you find/make a way for the demon to be undetectable...you are being "unfair to the player". Of course, this is IF you haven't already thought about how "supernatural creatures" operate in your world before. Or, to put it another way, if this is the first time anyone in the campaign has ever dealt with 'detecting' supernormal creatures like demons, angels, undead, etc...and you are now just "deciding" to make one of the key powers of a Paladin useless for "story reasons"...then yeah, definitely in the "richard move" category of DM'ing.
So, what to do IF this is the first time...but not make it "richard'ish"? Because the choice you make now will determine a LOT of stuff in the fiction of your campaign setting and game as a whole. It's not just "one and done"...you WILL have to live by this decision for a long time if not forever.
Me? I might be inclined to allow the Paladin's detection to go by the intent of the ability: "To not be deceived by supernatural entities like demons, angles and undead". I'd rule, if I was in your situation, that when a Paladin uses Divine Sense, he can detect the 'location' of these things within that 60'. But he can't pin-point it. So "Someone in this room...is a demon!"...but he couldn't just point into the crowd of tavern goers and say "She's a demon!". I'd rationalize it by saying that the more living things that are around...the more "diffused" the 'evil/good emanations' are...like looking through smoked or frosted glass.
This way the Paladin still gets to use one of his KEY abilities, but he has to use it/them at the best time. He does have limited times per day. And, if in any sort of settlement, there are going to be a LOT of living things within a 60' radius! I'm in a relatively sparse apartment building with only 12 apartments in it...but I'd still say there are probably at least two to three or even four dozen people (there is a second building that is right at the edge of that 60' from where I'm sitting now). So I may be able to say "That apartment or the one next to or above has a demon in it"...but I couldn't say "It's Soda, the cat!"
This sort of approach also leads to a game of "cat and mouse" with the Succubus using her "feminine wiles" to get people to vouch for her, protect her, or act/do suspicious things...planting particular evidence on other women, or causing fights between lovers/husband-wives, etc. It would still keep the Paladin as the primary "focus" of the Succubus, obviously, but might still allow her JUST enough time to pull off whatever goal she was working towards. A classic "who is the murderer?" type of thing.
Of course, IF the Paladin manages to somehow get her alone and away from everyone else, it would be painfully obvious she's a demon. But...the fun would be in seeing how the Paladin and other PC's sus out which person is the "demon" in the first place! I mean, c'mon...being called a "demon" by a Paladin has GOT to hurt a persons reputation in a community...one false accusation by the Paladin and his Party and some guy/gal's life is over; it'd be the equivalent of an FBI agent calling an elementary school teacher a "pedo who murdered at least 4 kids", bringing charges, then a couple days later saying "naaa...sorry...we were wrong". By then the damage is done; that teachers career is
over; no more working for anyone, really. His rep on the internet and all the news headlines...still up for all to see. Forever. Even IF there's a retraction...those initial tweets/posts/articles are there....and how many people read past the headline anyway? Same thing in a small medieval town; once a witch, always a witch, even when the witch wasn't a witch.
The Paladin would have to be CERTAIN...or he/she risks doing FAAAAR more damage than the succubus could do by herself!
^_^
Paul L. Ming