VS Code 1.142 changes where managed agent permissions are enforced.

A nonempty managed permissions object or sandbox.enabled=true now requires Copilot Agent Host for full chat sessions. Existing Local chats move with their transcript and draft; the destination sends nothing automatically. While those policies apply, Claude, Codex and terminal chat are unavailable. ¹

Keeping Local also changes enforcement. The temporaryDefaultToLocalHarness opt-out keeps Local available, but Local does not enforce the runtime-only sandbox and permission rules. Assisted Permissions also currently conflicts with permissions.allow, ask and deny; the release advises disabling Assisted when using those rules. ¹

Before a fleet upgrade, inspect the effective managed configuration on a test machine. Open a saved chat, inspect the destination harness and permission mode, and exercise an explicitly denied operation. Decide routing and enforcement together.

Follow-up added 19 October: in a 16 October issue, Genos reports losing Local after upgrading to 1.142.0 and recovering it by downgrading. Another user, Philipp, says their administrator restored Local with the temporary opt-out. A maintainer confirms the policy change and acknowledges the disruptive rollout. These are reported outcomes, not our reproduction. ⁷