diff --git a/libfdt/fdt_overlay.c b/libfdt/fdt_overlay.c
index e19506f..28b667f 100644
--- a/libfdt/fdt_overlay.c
+++ b/libfdt/fdt_overlay.c
@@ -729,7 +729,13 @@ static int overlay_prevent_phandle_overwrite(void *fdt, void *fdto)
 			return overlay;
 
 		target = fdt_overlay_target_offset(fdt, fdto, fragment, NULL);
-		if (target < 0)
+		if (target == -FDT_ERR_NOTFOUND)
+			/*
+			 * The subtree doesn't exist in the base, so nothing
+			 * will be overwritten.
+			 */
+			continue;
+		else if (target < 0)
 			return target;
 
 		ret = overlay_prevent_phandle_overwrite_node(fdt, target,
diff --git a/tests/overlay_overlay_bypath.dts b/tests/overlay_overlay_bypath.dts
index f23e7b6..dfcb7cd 100644
--- a/tests/overlay_overlay_bypath.dts
+++ b/tests/overlay_overlay_bypath.dts
@@ -46,3 +46,7 @@
 		new-sub-test-property;
 	};
 };
+
+&{/new-local-node} {
+	another-new-property;
+};
diff --git a/tests/overlay_overlay_no_fixups.dts b/tests/overlay_overlay_no_fixups.dts
index e8d0f96..1dbdcdc 100644
--- a/tests/overlay_overlay_no_fixups.dts
+++ b/tests/overlay_overlay_no_fixups.dts
@@ -72,6 +72,14 @@
 		};
 	};
 
+	fragment@7 {
+		target-path = "/new-local-node";
+
+		__overlay__ {
+			another-new-property;
+		};
+	};
+
 	__local_fixups__ {
 		fragment@5 {
 			__overlay__ {