diff --git a/.gitignore b/.gitignore
index 778c74b..813885a 100644
--- a/.gitignore
+++ b/.gitignore
@@ -10,3 +10,6 @@ build/
 .tree-sitter/
 grammars/p8_cart/
 grammars/pico8_lua/
+
+# scratch directory for stuff to show an AI agent or reference in the IDE
+.local/
diff --git a/README.md b/README.md
index 75e3eeb..9e58f00 100644
--- a/README.md
+++ b/README.md
@@ -53,6 +53,20 @@ their PICO-8 work continue to get standard Lua treatment.
 
 ### Known limitations
 
+- **Line-significant dialect features are not modeled.** PICO-8's
+  shorthand `if (cond) stmt [else stmt]` is line-bounded — a
+  later-line `else` belongs to an enclosing standard `if`, not the
+  shorthand. Without an external scanner, the grammar can't see
+  newlines, so it greedily binds `else` to the nearest `if` ( the
+  C / Java convention ) and treats a multi-statement single-line
+  shorthand body as one statement plus a sequence of unconditional
+  follow-ups. The parse is structurally wrong but **tokens still
+  classify correctly**, so syntax highlighting renders identically
+  to a correct parse; only auto-indent and semantic selection are
+  subtly affected. Full write-up:
+  [`grammars/pico-8-lua/KNOWN_LIMITATIONS.md`](grammars/pico-8-lua/KNOWN_LIMITATIONS.md).
+  Slated for v0.3 work alongside LSP integration ( which needs a
+  correct AST ).
 - **No language server.** No completion, hover docs, or diagnostics for
   PICO-8 builtins yet — only a static `function.builtin` highlight on
   recognized names. See Roadmap.
@@ -163,7 +177,13 @@ fallback `unknown_section` rule.
 
 ### v0.3 — Language server integration
 
-Wire up [`japhib/pico8-ls`](https://github.com/japhib/pico8-ls) ( or whichever
+Prerequisite: an external scanner for `tree-sitter-pico8-lua` so the
+shorthand-if and shorthand-while bodies are line-bounded the way PICO-8
+defines them. See [`grammars/pico-8-lua/KNOWN_LIMITATIONS.md`](grammars/pico-8-lua/KNOWN_LIMITATIONS.md).
+LSP features that walk the AST ( unreachable-code lint, goto-definition
+through a conditional branch ) need correct structure.
+
+Then wire up [`japhib/pico8-ls`](https://github.com/japhib/pico8-ls) ( or whichever
 PICO-8 LSP is most maintained at the time ) for:
 
 - Completion of PICO-8 builtins ( `spr`, `circfill`, `btn`, `flr`, … ).
diff --git a/grammars/pico-8-lua/KNOWN_LIMITATIONS.md b/grammars/pico-8-lua/KNOWN_LIMITATIONS.md
new file mode 100644
index 0000000..aca73a8
--- /dev/null
+++ b/grammars/pico-8-lua/KNOWN_LIMITATIONS.md
@@ -0,0 +1,106 @@
+# Known limitations of `tree-sitter-pico8-lua`
+
+PICO-8's Lua dialect is **line-significant** in two places: the body of a
+shorthand `if (cond) ...` / `while (cond) ...` extends to end-of-line, and
+the optional `else` of a shorthand `if` must be on the same line as the
+opening `if`. Tree-sitter has no built-in concept of newlines as syntactic
+tokens — to encode line-significance correctly we'd need an **external
+scanner** ( a C file that emits synthetic line-end tokens, the same
+mechanism `tree-sitter-python` uses for `INDENT`/`DEDENT`/`NEWLINE` ).
+
+We have intentionally not written that scanner yet. This document tracks
+the resulting parse incorrectness so it isn't forgotten when we revisit.
+
+## 1. Dangling-`else` mis-bind in nested `if`
+
+```lua
+-- intended:  outer if/else, with shorthand-if as a single statement
+-- inside the outer if's consequence.
+if is_noisy then
+  if (is_goose()) honk()
+else
+  toot()
+end
+```
+
+The grammar's shorthand `if` rule uses `prec.right` on its optional `else`
+clause, so it greedily eats any `else` it can see — matching the
+classic "associate else with nearest if" convention from C / Java.
+That's wrong for PICO-8, where the line break after `honk()` should
+have closed the shorthand. The bound-too-tight parse:
+
+- `else` is parsed as the shorthand's alternative, not the outer if's.
+- The outer `if_statement` ends up with no `else_statement` child.
+- The trailing `end` still resolves to the outer `if_statement`,
+  so the source still parses cleanly ( no `ERROR` node ).
+
+**Indistinguishable case** — both parses are correct here, because the
+`else` really is on the same line as the shorthand:
+
+```lua
+if is_noisy then
+  if (is_goose()) honk() else toot()
+end
+```
+
+## 2. Multi-statement shorthand body
+
+```lua
+-- both statements are conditional in PICO-8.
+if (is_falling()) wheeee() splat()
+```
+
+The grammar's `shorthand_if_statement` rule takes exactly one
+consequence statement, so this parses as:
+
+- `shorthand_if_statement` with consequence `wheeee()`
+- followed by an unconditional `splat()` statement
+
+A line-aware grammar would gather every statement up to end-of-line
+into the shorthand body. Visually:
+
+```lua
+-- this and the previous example produce the SAME parse tree under
+-- the current grammar, which is wrong for the previous example.
+if (is_falling()) wheeee()
+splat()
+```
+
+## What does this break?
+
+The parse is structurally wrong but **token classification stays
+correct**, because every keyword and identifier is still itself
+regardless of which parent node owns it. So:
+
+| Feature | Affected? | Notes |
+|---|---|---|
+| `highlights.scm` ( syntax highlighting ) | No | `else` is `@keyword.conditional` whether it's a child of `shorthand_if_statement` or `else_statement`. |
+| `outline.scm` ( file outline ) | No | Doesn't traverse if-bodies. |
+| Bracket matching | No | Independent of if/else structure. |
+| Injections | No | Independent. |
+| `indents.scm` ( auto-indent ) | Subtly | A mis-bound `else` is inside a `shorthand_if_statement`, which is not an `@indent` node; so the next line may land at the wrong indent column. |
+| Semantic selection ( "expand selection" ) | Subtly | Cursor on `toot()` expands to `shorthand_if_statement` instead of `else_statement` → outer `if_statement`. |
+| `folds.scm` / `textobjects.scm` | Potentially | Not currently shipped; would inherit the structural bug if we add them. |
+| Static analysis / LSP-style features | Yes | Anything that walks the AST to reason about reachability or scope ( e.g. "unreachable code", goto-definition through a conditional branch ) will mis-report. None of this is shipped today. |
+
+For v0.2's stated scope ( syntax highlighting + a basic outline ), the
+visible symptom is "auto-indent occasionally off by one column inside a
+nested-if-with-out-of-line-else", which only bites a relatively
+uncommon code pattern. Deferred until v0.3 LSP work, which needs a
+correct AST.
+
+## Fixing it later
+
+The canonical approach is an external scanner. Sketch:
+
+1. Add an `external` symbol like `_logical_line_end` that emits at every
+   `\n` *not* preceded by line-continuation context.
+2. Make `shorthand_if_statement` take the form
+   `seq('if', '(', expr, ')', stmt, optional(seq(\
+   /* not _logical_line_end yet */ 'else', stmt)), $._logical_line_end)`.
+3. Allow `shorthand_if_statement` consequence to be `repeat1(stmt)` so a
+   one-line `if (x) a() b()` puts both calls in the shorthand body.
+
+The scanner needs to be written in C, registered via the `externals`
+field, and built into `src/scanner.c`. `tree-sitter-python`'s scanner is
+a good reference for the pattern.