Take into account the identity server when setting the default value of showLocalContacts.

Riot/Modules/Contacts/DataSources/ContactsDataSource.m

@@ -80,7 +80,6 @@
         _areSectionsShrinkable = NO;
         shrinkedSectionsBitMask = 0;
         
-        _showLocalContacts = MXKAppSettings.standardAppSettings.syncLocalContacts;
         hideNonMatrixEnabledContacts = NO;
         
         _displaySearchInputInContactsList = NO;
@@ -93,6 +92,16 @@
     return self;
 }
 
+- (instancetype)initWithMatrixSession:(MXSession *)mxSession
+{
+    self = [super initWithMatrixSession:mxSession];
+    if (self) {
+        // Only show local contacts when contact sync is enabled and the identity server terms of service have been accepted.
+        _showLocalContacts = MXKAppSettings.standardAppSettings.syncLocalContacts && self.mxSession.hasAccountDataIdentityServerValue;
+    }
+    return self;
+}
+
 - (void)destroy
 {
     [[NSNotificationCenter defaultCenter] removeObserver:self name:kMXKContactManagerDidUpdateMatrixContactsNotification object:nil];