diff --git a/tripleoclient/tests/v1/tripleo/test_tripleo_deploy.py b/tripleoclient/tests/v1/tripleo/test_tripleo_deploy.py
index e7a1f240d..5331ebb96 100644
--- a/tripleoclient/tests/v1/tripleo/test_tripleo_deploy.py
+++ b/tripleoclient/tests/v1/tripleo/test_tripleo_deploy.py
@@ -107,25 +107,35 @@ class TestDeployUndercloud(TestPluginV1):
         mock_data.return_value = [{'name': 'Bar'}, {'name': 'Foo'}]
         self.assertEqual(self.cmd._get_primary_role_name(), 'Bar')
 
-    @mock.patch('os.path.exists', side_effect=[True, False])
+    @mock.patch('os.path.exists', return_value=True)
     @mock.patch('shutil.copytree')
     @mock.patch('tripleoclient.v1.tripleo_deploy.Deploy.'
                 '_create_working_dirs')
-    def test_populate_templates_dir(self, mock_workingdirs, mock_copy,
-                                    mock_exists):
+    @mock.patch('tripleoclient.v1.tripleo_deploy.Deploy.'
+                '_set_data_rights')
+    def test_populate_templates_dir(self, mock_rights, mock_workingdirs,
+                                    mock_copy, mock_exists):
         self.cmd.tht_render = '/foo'
         self.cmd._populate_templates_dir('/bar')
         mock_workingdirs.assert_called_once()
         mock_copy.assert_called_once_with('/bar', '/foo', symlinks=True)
 
     @mock.patch('os.path.exists', return_value=False)
+    @mock.patch('shutil.copytree')
     @mock.patch('tripleoclient.v1.tripleo_deploy.Deploy.'
                 '_create_working_dirs')
-    def test_populate_templates_dir_bad_source(self, mock_workingdirs,
-                                               mock_exists):
+    @mock.patch('tripleoclient.v1.tripleo_deploy.Deploy.'
+                '_set_data_rights')
+    def test_populate_templates_dir_no_source(self, mock_rights,
+                                              mock_workingdirs, mock_copy,
+                                              mock_exists):
         self.cmd.tht_render = '/foo'
-        self.assertRaises(exceptions.NotFound,
-                          self.cmd._populate_templates_dir, '/foo')
+        self.cmd._populate_templates_dir('/bar')
+        mock_workingdirs.assert_called_once()
+        mock_copy.assert_has_calls([
+            mock.call(constants.TRIPLEO_HEAT_TEMPLATES,
+                      '/bar', symlinks=True),
+            mock.call('/bar', '/foo', symlinks=True)])
 
     # TODO(cjeanner) drop once we have proper oslo.privsep
     @mock.patch('getpass.getuser', return_value='stack')
diff --git a/tripleoclient/v1/tripleo_deploy.py b/tripleoclient/v1/tripleo_deploy.py
index 86e36f194..e859e1ed1 100644
--- a/tripleoclient/v1/tripleo_deploy.py
+++ b/tripleoclient/v1/tripleo_deploy.py
@@ -219,22 +219,34 @@ class Deploy(command.Command):
             self.tmp_ansible_dir = tempfile.mkdtemp(
                 prefix='undercloud-ansible-', dir=self.output_dir)
 
-    def _populate_templates_dir(self, source_templates_dir):
-        """Creates template dir with templates
+    def _populate_templates_dir(self, source_templates_dir, user=None):
+        """Creates templates dir containing TripleO Heat Templates
 
-        * Copy --templates content into a working dir
+        * If source_templates_dir does not exist, create it and populate from
+          the t-h-t system directory (installed from RPM). This may be the
+          case for mixed UC/OC deployments or upgrades, which require different
+          versions of t-h-t.
+        * Always copy source_templates_dir into the working dir
           created as 'output_dir/tripleo-heat-installer-templates'.
 
         :param source_templates_dir: string to a directory containing our
                                      source templates
         """
+        # NOTE(bogdando): this ensures self.tht_render defined and its target
+        # directory is purged for a new clear run of _populate_templates_dir
         self._create_working_dirs()
         if not os.path.exists(source_templates_dir):
-            raise exceptions.NotFound("%s template director does not exists" %
-                                      source_templates_dir)
-        if not os.path.exists(self.tht_render):
-            shutil.copytree(source_templates_dir, self.tht_render,
-                            symlinks=True)
+            self.log.warning(
+                _("%s template directory does not exists. "
+                  "A new directory will be populated from the "
+                  "TripleO Heat Templates system directory.") %
+                source_templates_dir)
+            shutil.copytree(constants.TRIPLEO_HEAT_TEMPLATES,
+                            source_templates_dir, symlinks=True)
+            self._set_data_rights(source_templates_dir, user=user, mode=0o700)
+
+        shutil.copytree(source_templates_dir, self.tht_render,
+                        symlinks=True)
 
     def _cleanup_working_dirs(self, cleanup=False, user=None):
         """Cleanup temporary working directories
@@ -966,7 +978,8 @@ class Deploy(command.Command):
         self._configure_puppet()
 
         # copy the templates dir in place
-        self._populate_templates_dir(parsed_args.templates)
+        self._populate_templates_dir(parsed_args.templates,
+                                     parsed_args.deployment_user)
 
         # configure our roles data
         self._set_roles_file(parsed_args.roles_file, self.tht_render)