diff --git a/developer/src/kmc-ldml/test/fixtures/sections/vars/fail-badref-7.xml b/developer/src/kmc-ldml/test/fixtures/sections/vars/fail-badref-7.xml
new file mode 100644
index 0000000000..bc9cc365ba
--- /dev/null
+++ b/developer/src/kmc-ldml/test/fixtures/sections/vars/fail-badref-7.xml
@@ -0,0 +1,20 @@
+<?xml version="1.0" encoding="UTF-8"?>
+
+<keyboard3 xmlns="https://schemas.unicode.org/cldr/45/keyboard3" locale="mt" conformsTo="45">
+  <info name="vars-fail" />
+
+  <keys />
+
+  <variables>
+    <string id="markcaret" value="✔🥕" />
+    <set id="vowel" value="a i o"/>
+    <set id="caretVowel" value="🥕a 🥕i 🥕o"/>
+  </variables>
+
+  <transforms type="simple">
+    <transformGroup>
+      <transform from="${mark-caret}($[vowel])" to="$[1:caretVowel]" />
+    </transformGroup>
+  </transforms>
+
+</keyboard3>
diff --git a/developer/src/kmc-ldml/test/test-vars.ts b/developer/src/kmc-ldml/test/test-vars.ts
index e3ac53c4a9..501c294961 100644
--- a/developer/src/kmc-ldml/test/test-vars.ts
+++ b/developer/src/kmc-ldml/test/test-vars.ts
@@ -187,6 +187,10 @@ describe('vars', function () {
         CompilerMessages.Error_MissingStringVariable({id: 'missingStringInSet'})
       ],
     },
+    {
+      subpath: 'sections/vars/fail-badref-7.xml',
+      errors: true,
+    },
   ], varsDependencies);
   describe('should match some marker constants', () => {
     // neither of these live here, but, common/web/types does not import ldml-keyboard-constants otherwise.