Microsoft Product Terms Update: September 2026

September's Product Terms introduce detailed rules for Azure Virtual Desktop Hybrid on customer or eligible outsourcer infrastructure. They also give Windows App commercial-use rights for specified Azure Virtual Desktop and Windows 365 connections. For Dynamics 365 buyers, a rewritten purchasing-minimums table removes the explanation of how different base licences could be combined. A base licence covers a user's first full-access Dynamics 365 application; additional qualifying applications can be bought through attach licences. Microsoft Unified customers now have a broader service-description site as their reference. Alongside the regular 1 September release, this update covers the 10 August removal of an Arc-specific outsourcing restriction for SQL Server. That deletion is separate from the existing right to take qualifying SQL Server licences to Listed Providers.

Key takeaways:

• Azure Virtual Desktop Hybrid requires Azure Arc; session hosts may run on customer-owned or Authorized Outsourcer infrastructure, but not in a Listed Provider environment, and Windows Enterprise multi-session is not permitted

• Windows App gains commercial-use rights through the Windows Desktop Operating System, Azure and Windows 365 Product Terms for specified connections; the waiver does not replace the licences and subscriptions required to use those services

• SQL Server enabled by Azure Arc loses a restriction on hosting deployments licensed through Software Assurance or a subscription; this Arc-specific change is separate from existing hosting rights, and Microsoft's guidance still prohibits unlimited virtualisation on Listed Provider infrastructure

• The quantities in the Dynamics 365 purchasing minimums have not changed, but the table no longer says which combinations of Commerce, Finance, Project Operations and Supply Chain Management base licences can satisfy their 20-licence minimums

• The new Microsoft Unified Service Descriptions reference covers a wider set of Microsoft Unified services, but the customer's Work Order still determines what was purchased

Azure Virtual Desktop Hybrid brings the Azure control plane to customer infrastructure

Azure Virtual Desktop normally combines desktops and applications running on Azure virtual machines with an Azure-hosted control plane, the service that manages remote sessions and connects users to them. Azure Virtual Desktop Hybrid keeps that service in Azure but allows the session hosts, the machines running users' desktops and applications, to remain on other infrastructure. Microsoft's September technical overview supports on-premises virtual machines and dedicated headless physical machines with supported Windows client or Windows Server operating systems. Azure Arc registers each machine with Azure, and an Azure Virtual Desktop extension installs the required components and registers the machine as a session host.

Your organisation retains responsibility for the machines, virtualisation platform, network and hosting environment. Microsoft operates the remote-desktop control plane in Azure, while the customer or its outsourcer operates the infrastructure on which the user sessions run. Microsoft's September overview also identifies functions that the hybrid service does not provide. The unavailable functions include power management, autoscale, Start VM on Connect and session-host configuration. Customers therefore retain the work of provisioning and managing those machines.

The September Product Terms now establish the contractual boundaries for that arrangement. Azure Arc is a prerequisite. The infrastructure may be owned or operated by the customer or an Authorized Outsourcer. An Authorized Outsourcer is a service provider that is not a Listed Provider and does not use a Listed Provider as its datacentre provider for the service. Azure Virtual Desktop Hybrid may not be used for virtual machines in Listed Provider environments. Microsoft also prohibits Windows Enterprise multi-session, the Windows edition commonly associated with Azure Virtual Desktop session hosts in Azure.

Microsoft's Listed Providers are Alibaba, Amazon, Google and Microsoft. The Hybrid terms therefore do not create a route for moving hybrid session hosts onto those providers' infrastructure. The supported arrangement is infrastructure that the customer owns or operates itself, or infrastructure owned or operated by an eligible outsourcer.

The access licence depends on the operating system

The service fee and the user's right to access Windows are separate parts of the commercial model. Microsoft's Azure Virtual Desktop Hybrid pricing page requires both user access rights and a per-user monthly Hybrid service fee, with purchasing handled through the Microsoft account team. The Product Terms then divide the access rights between Windows client and Windows Server hosts.

For Windows client virtual machines, the eligible licences include Microsoft 365 E3, E5 or E7, G3 or G5, F3, Business Premium, and A3 or A5, including the Student Use Benefit. Windows Enterprise E3 or E5, Windows Education A3 or A5, and Windows Virtual Desktop Access (VDA) E3 or E5 also qualify.

Microsoft's Windows and Microsoft 365 virtual-desktop licensing guidance explains these licence options; the linked Hybrid Product Terms determine eligibility for this service. Windows VDA is another licence for accessing a virtual Windows desktop. The Hybrid provision also exempts these virtual machines from the user's Windows device-activation limit. Our guides explain Microsoft 365 E7 and the distinction between a Windows Enterprise subscription and a full Windows licence.

Three requirements stack for Azure Virtual Desktop Hybrid: infrastructure owned or operated by the customer or an eligible outsourcer, a per-user monthly Hybrid service fee, and a Windows or RDS access licence for each user. Power management, autoscale and Start VM on Connect are not part of the hybrid service.

Windows Server follows the Remote Desktop Services (RDS) model. A Client Access Licence (CAL) licenses the user or device connecting to the service. Owning a perpetual RDS CAL alone is insufficient for Hybrid access. The Hybrid access provision requires Software Assurance coverage on that CAL to remain active. The permitted options are an RDS User CAL with active Software Assurance, an RDS User Subscription Licence, or an RDS Device CAL with active Software Assurance. The terms also refer to RDS Subscriber Access Licences (SALs) under the Services Provider License Agreement (SPLA), but only where the applicable SPLA terms permit the use.

That last route contains an unresolved contractual gap as of 5 September 2026. The Services Provider Use Rights (SPUR) Windows Server entry supports desktops delivered as a service through Windows Server and RDS SALs generally. Its specific provision for “Azure Virtual Desktop with Windows Server”, however, says that right continued only until 30 September 2025. The September Product Terms and Azure pricing page recognise RDS SALs for Azure Virtual Desktop Hybrid, but the latest SPUR, dated 6 May 2026, does not add or name the hybrid service. The sources do not explain how that conditional Hybrid permission fits with the older SPUR expiry date. If you provide hosted desktops, the new Product Terms reference alone does not resolve how Microsoft applies the current SPUR.

A headless physical server has its own conditions

The new Product Terms also address a physical machine used solely to host Azure Virtual Desktop Hybrid workloads. Microsoft calls this a Headless Server Configuration. The machine must remain continuously connected to and managed through Azure Arc. It may not serve as a local end-user computer, and end users may reach it only through Azure Virtual Desktop Hybrid. Local access is limited to administration, maintenance and support.

Supported Windows client or Windows Server operating systems may run in that configuration, but the headless label is not an alternative licensing model. The normal Windows, Windows Server, Remote Desktop Services and Azure Virtual Desktop Hybrid requirements continue to apply. The new section defines the permitted use of the physical machine; it does not make the operating system or user access free.

Windows App receives limited commercial-use rights

Windows App is Microsoft's connection client for Windows 365, Azure Virtual Desktop and other remote Windows resources. Its standalone licence terms in force on 5 September 2026 still permit personal, non-commercial use unless another agreement gives the user commercial-use rights. A customer could therefore have valid rights to a Windows 365 Cloud PC or an Azure Virtual Desktop session while the app used to reach it carried a separate non-commercial limitation.

For enterprise users, the September Product Terms supply the missing commercial permission. The Windows Desktop Operating System and Azure entries waive the restriction when Windows App connects to Azure Virtual Desktop. The Windows 365 entry does the same for Windows 365 Reserve, Windows 365 Flex, Windows 365 Business, Windows 365 for Agents and Windows 365 Enterprise, provided that the customer holds a valid subscription.

The waiver is narrow. It removes the Windows App licence obstacle for those connections; it does not grant the underlying desktop or Cloud PC service. An internal user connecting to an Azure Virtual Desktop Windows client host still needs an eligible Microsoft 365, Windows Enterprise, Windows Education or Windows VDA licence. Windows Server hosts still require RDS access rights, which the same Microsoft guidance specifies as RDS CALs with Software Assurance or RDS User Subscription Licences.

Selling external customers access to an application on Windows client hosts requires Azure Virtual Desktop per-user access pricing. Contractors serving your organisation's internal business purposes need eligible licences instead. The external-commercial pricing route is not available for Windows Server hosts.

The separate Windows App terms make the same dependency visible for Windows 365. Access obtained through a commercial subscription remains governed by that subscription and may end when the subscription expires or the organisation removes the user's access. The September waiver covers the named connections, not unrestricted commercial use of Windows App.

SQL Server enabled by Azure Arc loses an outsourcing restriction

Azure Arc lets organisations connect SQL Server installations to Azure for management, including installations running outside Microsoft's cloud. Customers can pay for SQL Server by the hour through Azure or bring qualifying licences covered by Software Assurance or a subscription. With those existing licences, Arc reports SQL Server usage through a free hourly meter. Connecting the installation to Arc therefore does not, by itself, mean paying for its SQL Server licence again.

On 10 August, Microsoft removed a restriction on where customers could run Arc-connected SQL Server using Software Assurance or subscription licences. The deleted wording limited them to their own devices or servers managed by Authorized Outsourcers. That category excludes Listed Providers, such as Amazon Web Services (AWS) and Google, and providers using their data centres. The Azure Product Terms no longer contain that restriction for these licences. The previous wording is available by selecting the 1 August 2026 Effective Date and finding “SQL Server enabled by Azure Arc”.

Customers already had a route to use eligible SQL Server licences on Listed Providers through License Mobility through Software Assurance. This benefit allows an organisation to take its licences to a qualified hosting partner, including a Listed Provider that is an Authorized Mobility Partner, subject to the licensing conditions and a verification form for each partner. It is separate from the Flexible Virtualization Benefit, which excludes Listed Providers. Microsoft also extended Software Assurance-equivalent rights to the affected SQL Server subscription licences under the Microsoft Customer Agreement (MCA) in its 1 April 2026 update.

The deleted Arc restriction sat awkwardly alongside that existing mobility benefit. The mobility terms expressly take precedence over conflicting product licence terms. Customers using that benefit therefore already had terms protecting their eligible third-party deployments. Microsoft's change notice describes the August revision as a clarification of supported deployments, but does not explain how the old Arc restriction was intended to work alongside those rights.

For SQL Server virtual machines at a hosting partner or in another cloud, Microsoft's Arc licensing guidance describes licensing each virtual machine by its virtual cores, the processing capacity assigned to it. Customers can use pay-as-you-go billing or qualifying Software Assurance or subscription licences, subject to the applicable outsourcing conditions. On Listed Provider infrastructure, the guidance says these virtual machines can only be licensed by virtual core.

The alternative, unlimited virtualisation, uses Enterprise edition licensing to cover the physical cores of a server and run any number of SQL Server virtual machines on it. Microsoft has retained the Arc restriction that limits this option, when bought through pay-as-you-go billing, to the customer's own devices or servers managed by Authorized Outsourcers. That remaining restriction excludes Listed Providers.

There is still an unanswered question about using your own licences for unlimited virtualisation on third-party servers. The revised Product Terms retain the Arc infrastructure restriction only for pay-as-you-go, while Microsoft Learn says unlimited virtualisation is unavailable on Listed Provider infrastructure without distinguishing between payment methods. Its guidance continues to require virtual-core licensing there. Microsoft has not clearly explained how the deletion affects other third-party physical-core arrangements using Software Assurance or subscription licences.

Dynamics 365 purchasing minimums lose their explanatory column

Customers combining different Dynamics 365 products face an unanswered purchasing question in September 2026. The Product Terms purchasing-minimums table still sets the same minimum quantities, but no longer explains which base licences can be combined to meet them. The previous table contained a third column called “Minimum purchased Base Licenses”. For Commerce, Finance, Project Operations and Supply Chain Management, it allowed the 20-licence minimum to be formed from any of those four base products, rather than necessarily from 20 copies of the product named in that row.

The deleted column also explained which licences counted for the Premium products and Professional Direct Support. The Dynamics provisions effective on 1 August 2026 are available by setting that page's Effective Date to 1 August 2026 and finding the purchasing minimums for all programmes. Select “Present Day Terms” on the same page for the replacement. The September replacement retains these quantities but removes the accompanying mappings.

Source: Dynamics 365 Product Terms, comparing Effective Date 1 August 2026 with Present Day Terms.

The other deleted cells in the 1 August table repeated the product or tier named on their own row, including Microsoft Relationship Sales, Human Resources and the Additional People and database-capacity tiers.

What remains is a two-column table that names a product and a “Minimum License Purchase Quantity Required”. Its introductory sentence now requires a minimum number of the “Base Licenses listed in the table below”; the table pairs each product with a quantity but no longer explains which other base licences can contribute.

Microsoft describes the rewrite as an update for clarity. Although the September quantities match those published on 1 August 2026, one of the rules that explained how to meet them has disappeared. The current Dynamics 365 licensing guidance available on 5 September 2026 confirms that some products carry purchasing minimums and sends the reader back to the Product Terms for the detail. Neither that guidance nor the new table explains whether a customer may still combine Commerce, Finance, Project Operations and Supply Chain Management base licences to reach 20.

Pairing each product with a quantity in the September version can be read as requiring that minimum in the named product. That reading would be a commercial change for customers who relied on the former mixed-product route, but Microsoft has not expressly confirmed it in these sources. The permission to pool licences documented on 1 August 2026 is absent from September's wording. A quotation or order that depends on combining those base licences therefore needs confirmation rather than an assumption that the deleted rule survives.

The rewrite also moves tier numbers from the quantity column into product names and renames the database-capacity entries. Comparing the 1 August and current versions of the table through the Effective Date selector shows the following changes, with the quantities unchanged.

Source: Dynamics 365 Product Terms, comparing Effective Date 1 August 2026 with Present Day Terms.

Microsoft's Power Platform licensing guidance also uses Dataverse Database Capacity. It describes the add-ons in 1 gigabyte (GB) increments and specifies a minimum quantity of 1,000 for Tier 2.

For the remaining products, September also carries forward the quantities published on 1 August 2026. Microsoft Relationship Sales requires 10, as do Dynamics 365 Finance Premium and Dynamics 365 Supply Chain Management Premium. Human Resources requires 5, and Professional Direct Support retains its minimum of 20 and cap of 250 licences. In the rewritten Professional Direct Support row, the opening parenthesis has moved from before the 250 maximum to after the en dash, immediately before the explanation of coverage after the cap. The published quantities and that explanation remain unchanged, indicating a formatting defect rather than a new quantity.

Microsoft Unified moves to a broader service-description site

For Microsoft Unified customers, the Work Order still controls the purchased services, quantities, scope and prerequisites. September's change concerns the documents describing those services. Microsoft's Professional Services terms now link to Microsoft Unified Service Descriptions, or MUSD. The new site identifies MUSD as the successor to the Unified Support Services Description, or USSD.

Microsoft presents MUSD as a web-based replacement designed to make the material easier to navigate and search.

The catalogue available for this September update covers Unified Enterprise foundational support and optional add-ons, Mission Critical Services, Value Acceleration Services and Unified Cloud Operations. It also carries legacy-name mappings, purchase and delivery conditions, severity definitions, response targets, and the responsibilities attached to service delivery. Customers following the revised Product Terms reference now reach this wider set of descriptions for Microsoft Unified and related offerings.

Microsoft presents three of the changes in this update as clarification or easier navigation: the Arc deletion, the Dynamics 365 table rewrite and the move to the new Unified service descriptions. For two of them the earlier wording has to be retrieved through the Effective Date selector, set back to 1 August 2026.

Microsoft's transition explanation says that existing Work Orders may continue to refer to USSD and that later description updates will not materially diminish purchased services and entitlements. Where the service descriptions conflict with the agreement or Work Order, those documents control. The new site describes the available services; your Work Order identifies the ones you bought.

Services Provider Use Rights have not changed

As of 5 September 2026, Microsoft's Services Provider Use Rights publication record still shows 6 May 2026 as the latest release. There is no September SPUR release in that record. The May changes concern the provisions for Office Suites and Multilanguage Pack, Project and Visio, under the rights governing Microsoft software licensed through SPLA.

Microsoft's published May summary says that output from robotic process automation, bots and similar technologies may not be used to develop, train, evaluate or improve artificial intelligence (AI) or machine-learning models, or to replicate product functionality. The operative provisions specify that the material covered includes data, logs, recordings or other outputs. They also prohibit using that material to fine-tune machine-learning or AI algorithms or models. These provisions remain historical material rather than new changes for this September update.

Get in touch

If you need help applying the Azure Virtual Desktop Hybrid, SQL Server enabled by Azure Arc or Dynamics 365 purchasing rules to your agreements and infrastructure, get in touch. We don't sell Microsoft licences or cloud services, so our advice is independent.