Last months rent deposit

[Huong Luu]

Hi Fellow REI, Looking for some advice on refunding the last months rent deposit to a tenant. Here is the situation:

Tenant gave 2 weeks noticed before their 1 year lease was up claiming the unit was unhealthy to live in and moved out with 1 month remaining on their lease. They are now asking for their last months back and threatening to report the building to the health unit. Should I return their last months rent so I avoid the headaches. Or stand my ground as the last months rent was applied to the month they moved out. 

The unit is in Ontario, Canada.