Quick Reference Summary
| MC ID | MC1381110 |
| Admin impact | High |
| User impact | Low |
| Rollout | From 1 July 2026 (on by default) |
| Action required | Audit unlicensed OneDrive accounts and choose a path before July |
| Who is affected? | Any tenant with unlicensed OneDrive accounts |
| Key risk | Permanent data deletion; retention / legal hold gaps |
What is Microsoft changing about unlicensed OneDrive accounts?
From 1 July 2026, Microsoft is introducing an enforced lifecycle for unlicensed OneDrive accounts. When a user's licence is removed or they're deleted from your tenant, their OneDrive will now go through a staged series of restrictions, eventually resulting in the data being at risk of permanent deletion if nothing is done.
This is tracked in MC1381110 and is on by default. There is no opt-in and no tenant-level toggle to disable it.
When employees leave or licences are removed, OneDrive accounts often sit in limbo — unlicensed, unmanaged, and consuming storage. Microsoft's goal is to give organisations clearer, more predictable storage governance and reduce long-term unmanaged data accumulation.
The practical effect: if your organisation has unlicensed OneDrive accounts that haven't been dealt with, 1 July 2026 is your deadline to decide what happens to that data.
Once an account becomes unlicensed, a staged enforcement timeline begins automatically.
| Timeline | What happens? |
| Day 0 | Licence removed or user deleted - account becomes unlicensed |
| Day 60 | OneDrive becomes read-only - content can be viewed and downloaded but not edited or uploaded |
| Day 93 | OneDrive is archived - direct user access is removed; retention policies, legal holds, and eDiscovery are still fully honoured. If billing is not enabled and the user is still active in Entra ID, deprovisioning begins on this date. |
| Day 275 | OneDrive data is removed from the environment after 275 days of non-payment |
| Day 365 | If the account remains unpaid and no action is taken, OneDrive data is at risk of being permanently deleted - at this point, retention policies and holds are no longer guaranteed to prevent deletion |
If a licence is reassigned or pay-as-you-go billing is enabled before deletion, the OneDrive exits the enforcement lifecycle and resumes normal behaviour - the staged restrictions are reversed.
Microsoft updated the wording of MC1381110 on 10 June 2026, changing "data is permanently deleted" to "data is at risk of being deleted" after 12 months of non-payment. That distinction matters — it implies there may be some recovery window — but Microsoft hasn't clarified what that looks like in practice.
Our recommendation: don't rely on that ambiguity. Treat the 12-month mark as a hard deadline and plan as if deletion is certain.
Admins have five options for each unlicensed account:
No action is needed if appropriate licensing, billing, or retention settings are already in place.
This is more nuanced than it might appear.
During the archival period (Days 93-275):
Archived unlicensed OneDrive accounts fully honour retention policies, litigation holds, and eDiscovery holds. Archiving does not reset or pause the retention timeline. Microsoft Purview eDiscovery and Content Search still work on archived content without requiring manual reactivation (though export can take up to 24 hours). If a retention policy is active, it is honoured regardless of whether billing is enabled.
After 275–365 days of non-payment:
This is where the compliance risk becomes real. After 12 cumulative months of non-payment, OneDrive data is at risk of being deleted, and at this point, Microsoft's documentation indicates that retention policies, retention settings, eDiscovery, and all holds may no longer prevent deletion. This is the critical gap for regulated industries.
Other compliance considerations:
The safest position for any organisation with data retention obligations: treat the Day 93 archival as your effective action deadline, not Day 365.
Here's a practical checklist:
Audit your unlicensed OneDrive accounts - identify all accounts where a licence was removed or the user was deleted
Check when each account becomes unlicensed - any account unlicensed for 60+ days may already be read-only under the new rules
This change applies to both OneDrive for Business and SharePoint Online where unlicensed user accounts are involved. SharePoint site collections tied to unlicensed users fall under the same staged enforcement. If you manage SharePoint sites with individual user owners who have since lost their licences, include those in your audit.