diff --git a/apps/desktop/src/renderer/routes/_authenticated/_dashboard/components/AddRepositoryModals/hooks/useFolderFirstImport/useFolderFirstImport.test.ts b/apps/desktop/src/renderer/routes/_authenticated/_dashboard/components/AddRepositoryModals/hooks/useFolderFirstImport/useFolderFirstImport.test.ts
new file mode 100644
index 00000000000..c8150c176ad
--- /dev/null
+++ b/apps/desktop/src/renderer/routes/_authenticated/_dashboard/components/AddRepositoryModals/hooks/useFolderFirstImport/useFolderFirstImport.test.ts
@@ -0,0 +1,100 @@
+import { beforeEach, describe, expect, it, mock } from "bun:test";
+
+const hostUrl = "http://host-service";
+const repoPath = "/repos/octocat";
+const setupResult = {
+	repoPath,
+	mainWorkspaceId: "workspace-1",
+};
+const cloudError = {
+	url: "https://github.com/octocat/hello.git",
+	message: "cloud-down",
+};
+
+const selectDirectoryMock = mock(async () => ({
+	canceled: false,
+	path: repoPath,
+}));
+const findByPathMock = mock(async () => ({
+	candidates: [] as { id: string; name: string }[],
+	cloudErrors: [] as (typeof cloudError)[],
+}));
+const setupMock = mock(async () => setupResult);
+const createMock = mock(async () => ({
+	projectId: "created-project",
+	repoPath,
+	mainWorkspaceId: "workspace-created",
+}));
+const finalizeSetupMock = mock(() => undefined);
+
+mock.module("react", () => ({
+	useCallback: <T extends (...args: never[]) => unknown>(callback: T) =>
+		callback,
+}));
+
+mock.module("renderer/lib/electron-trpc", () => ({
+	electronTrpc: {
+		window: {
+			selectDirectory: {
+				useMutation: () => ({ mutateAsync: selectDirectoryMock }),
+			},
+		},
+	},
+}));
+
+mock.module("renderer/lib/host-service-client", () => ({
+	getHostServiceClientByUrl: () => ({
+		project: {
+			findByPath: { query: findByPathMock },
+			setup: { mutate: setupMock },
+			create: { mutate: createMock },
+		},
+	}),
+}));
+
+mock.module("renderer/react-query/projects", () => ({
+	useFinalizeProjectSetup: () => finalizeSetupMock,
+}));
+
+mock.module(
+	"renderer/routes/_authenticated/providers/LocalHostServiceProvider",
+	() => ({
+		useLocalHostService: () => ({ activeHostUrl: hostUrl }),
+	}),
+);
+
+const { useFolderFirstImport } = await import("./useFolderFirstImport");
+
+describe("useFolderFirstImport", () => {
+	beforeEach(() => {
+		for (const fn of [
+			selectDirectoryMock,
+			findByPathMock,
+			setupMock,
+			createMock,
+			finalizeSetupMock,
+		]) {
+			fn.mockClear();
+		}
+		findByPathMock.mockResolvedValue({ candidates: [], cloudErrors: [] });
+	});
+
+	it("reports cloud lookup errors instead of creating a duplicate local import when no candidates exist", async () => {
+		findByPathMock.mockResolvedValue({
+			candidates: [],
+			cloudErrors: [cloudError],
+		});
+		const onError = mock(() => undefined);
+
+		const result = await useFolderFirstImport({ onError }).start();
+
+		expect(result).toBeNull();
+		expect(findByPathMock).toHaveBeenCalledWith({ repoPath });
+		expect(onError).toHaveBeenCalledWith(
+			"Couldn't reach cloud for https://github.com/octocat/hello.git: cloud-down",
+		);
+		expect(createMock).not.toHaveBeenCalled();
+		expect(setupMock).not.toHaveBeenCalled();
+		expect(finalizeSetupMock).not.toHaveBeenCalled();
+	});
+});
diff --git a/apps/desktop/src/renderer/routes/_authenticated/_dashboard/components/AddRepositoryModals/hooks/useFolderFirstImport/useFolderFirstImport.ts b/apps/desktop/src/renderer/routes/_authenticated/_dashboard/components/AddRepositoryModals/hooks/useFolderFirstImport/useFolderFirstImport.ts
index 26167172f75..32e2ed88380 100644
--- a/apps/desktop/src/renderer/routes/_authenticated/_dashboard/components/AddRepositoryModals/hooks/useFolderFirstImport/useFolderFirstImport.ts
+++ b/apps/desktop/src/renderer/routes/_authenticated/_dashboard/components/AddRepositoryModals/hooks/useFolderFirstImport/useFolderFirstImport.ts
@@ -49,6 +49,11 @@ export function useFolderFirstImport(options?: {
 		try {
 			const response = await client.project.findByPath.query({ repoPath });
 			candidates = response.candidates;
+			if (candidates.length === 0 && response.cloudErrors.length > 0) {
+				const first = response.cloudErrors[0];
+				onError?.(`Couldn't reach cloud for ${first.url}: ${first.message}`);
+				return null;
+			}
 		} catch (err) {
 			onError?.(err instanceof Error ? err.message : String(err));
 			return null;