What ever you decide for this particular case, you should consider changing the way you sell design (up front) so that this doesn't become a recurring issue in the future. When people want design work done for their sign, vehicle lettering, ect, we give them a couple options: Pay for a design for that one application, or buy a logo and go through the logo design process. If they go with the first option, we own the art, they can return to us every time they want to use the art. Option 2, since the design will be used as a logo, and paid for as a logo, we go through the proper logo design process where at the end they are handed a disk with their logo in all the formats they could possibly need.
Believe it or not, if you set this up right, and distinguish the difference between a logo and a one off design, you can sell a lot of logos, because most people want logos. I honestly believe that many people hire sign makers or printers to do the design work with the hopes that they can get more out of that design and use it as a logo without paying for a logo and going through the proper logo design process.