We clarified the documentation: https://docs.microsoft.com/en-us/azure/automation/automation-update-management#remove-a-vm-from-update-managementAnonymous commented
Ran into this when trying to switch Automation Accounts for a VM. Deleted a workspace so I could delete the old Automation Account, but had not removed it from VM (if that's even possible.)
I was able to fix this by:
1) Go to 'Log Analytics' in the portal.
2) Go to any other workspace in the same sub. (I went to the new one I was trying to switch to)
3) Find the VM, OMS Connection should say 'Other Workspace', or something like that.
4) Click that VM, and there should be a 'Disconnect' option at the top of the other blade.
5) Go back to the VM on the 'Virtual Machines' page. You should now be able to set up Update Management.