Basically, you should keep as much functionality as possible. But if your app is essentially a location app, that's a problem.
So, in such a case, I would alert the user of the effect of denying (what he/she will not be able to do) and explain how he/she can revert the deny. Doing so would incite them to turn it on later.
But you should not close the app.
Topic:
App & System Services
SubTopic:
Core OS
Tags: