The access control list for a file or folder needs to be rewritten in canonical form. Open an administrator PowerShell prompt. I found that this does not necessarily work unless running as an administrator, although no errors indicate that it fails.
First try the directory where TFS stores the workspace files:
cd $env:localappdata
cd '.\Microsoft\Team Foundation\'
gci -Recurse | % { Get-Acl $_ | Set-Acl $_ } # rewrite ACLs for all child folders and files.
$x = gi . # get current folder
Get-Acl $x | Set-Acl -Path $x # rewrite its ACL.
Now try parent directories (repeat this procedure to recurse up - for me the problem was fixed once I rewrote the ACL for the AppData folder).
$x = $x.Parent # get the parent directory
$x # display the folder to the console so you know what path you are working on.
Get-Acl $x | Set-Acl -Path $x # rewrite its ACL.
If this does not work, try repeating these steps for your source control path and its parent directories.