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A deposit may be either refundable or nonrefundable, depending on the wording used in the contract.
Read the contract, if it states that the deposit is nonrefundable then you won't refund it.
Otherwise you will likely have to refund the deposit, as the absence of a nonrefundability clause is usually taken to imply that the deposit was refundable.
If there was no written contract it might just be best to refund it to avoid an argument and remember to use a written contract with an explicit nonrefundability clause in it next time if you want to avoid refunding the deposit.
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