diff --git a/app/dao/templates_dao.py b/app/dao/templates_dao.py
index 2a9164429..e5e93199f 100644
--- a/app/dao/templates_dao.py
+++ b/app/dao/templates_dao.py
@@ -38,6 +38,9 @@ def dao_create_template(template):
 @transactional
 @version_class(Template, TemplateHistory)
 def dao_update_template(template):
+    if template.archived:
+        template.folder = None
+
     db.session.add(template)
 
 
diff --git a/tests/app/dao/test_templates_dao.py b/tests/app/dao/test_templates_dao.py
index cd2eb8992..b3d27a6d6 100644
--- a/tests/app/dao/test_templates_dao.py
+++ b/tests/app/dao/test_templates_dao.py
@@ -15,6 +15,7 @@ from app.dao.templates_dao import (
 )
 from app.models import (
     Template,
+    TemplateFolder,
     TemplateHistory,
     TemplateRedacted
 )
@@ -93,6 +94,35 @@ def test_update_template(sample_service, sample_user):
     assert dao_get_all_templates_for_service(sample_service.id)[0].name == 'new name'
 
 
+def test_update_template_in_a_folder_to_archived(sample_service, sample_user):
+    template_data = {
+        'name': 'Sample Template',
+        'template_type': "sms",
+        'content': "Template content",
+        'service': sample_service,
+        'created_by': sample_user
+    }
+    template = Template(**template_data)
+
+    template_folder_data = {
+        'name': 'My Folder',
+        'service_id': sample_service.id,
+    }
+    template_folder = TemplateFolder(**template_folder_data)
+
+    template.folder = template_folder
+    dao_create_template(template)
+
+    template.archived = True
+    dao_update_template(template)
+
+    template_folder = TemplateFolder.query.one()
+    archived_template = Template.query.one()
+
+    assert template_folder
+    assert not archived_template.folder
+
+
 def test_dao_update_template_reply_to_none_to_some(sample_service, sample_user):
     letter_contact = create_letter_contact(sample_service, 'Edinburgh, ED1 1AA')