Unlicensed OneDrive Accounts Face Deletion Despite Retention Policies and eDiscovery Holds

Preservation now depends on payment, not just policy.

Microsoft has announced (MC1381110), a new rule for OneDrive accounts that no longer have a license.  Starting as of July 1, 2026, if an unlicensed OneDrive account goes unpaid for a total of 365 days, Microsoft can delete it, even if a retention policy or legal hold is in place.  An account is protected only if it has a license or the organization pays to store it through Microsoft’s billing option for unlicensed accounts.  The rule does not apply to education or government (GCC and DoD) tenants.

The start date depends on when the account lost its license.  For accounts that were already unlicensed and unpaid on July 1, 2026, counting began that day, so the earliest possible deletion date is July 1, 2027.  For accounts that lose their license after that, counting begins the day the license is removed or the user’s account is deleted.  Microsoft’s timeline also shows these accounts drop out of eDiscovery at Day 275, about three months before deletion.

Microsoft’s guidance is direct: If billing is not turned on and the account stays unpaid, organizations should not rely on retention or legal hold settings alone to preserve the content.  Once a OneDrive account is deleted, its content can no longer be accessed.  That raises real preservation questions, and legal, compliance, and IT teams should address them now.

Now is a good moment to:

• Find your unlicensed accounts.  The OneDrive accounts report in the SharePoint admin center lists them and shows which are on hold or under a retention policy.
• Match them to your legal holds.  Flag any that belong to custodians in active matters.
• Decide what to keep, and how.  Options include assigning a license, turning on Microsoft’s billing for unlicensed accounts, or moving the content to a licensed location.  Once billing is on, storage charges apply to all archived unlicensed accounts in the tenant.
• Act before Day 275 (when the account will drop out of eDiscovery), not Day 365.  Collect or move held content while it can still be searched in eDiscovery.
• Update offboarding and hold procedures.  Make the 365-day limit part of how you handle departing employees and legal holds.

A hold only protects data that someone is paying to store.

Read Microsoft’s guidance on managing unlicensed OneDrive user accounts here.

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