I would say how reasonable it is depends on how the ILL system works? Mine has two different systems - the statewide one, which is all automatic, and has no restrictions, and the nationwide one, which requires our ILL people to negotiate personally with ILL staff at other libraries for a favor, and some of the other libraries will start saying no if they feel like we're making unreasonable requests. The nationwide also has the lending library set the due dates, so it could be anything from a one-week checkout to a five-month checkout on the first try.

If it's more like our nationwide system, and especially if you've had people (or even A Person) abuse it by returning books and then repeatedly placing them on hold again immediately, I can see them setting that kind of limit to stop this - it's not a matter of workload for your ILL staff, it's a matter of maintaining good relationships with the ILL staffs on the other end. And the books come and go library mail, so it might take two weeks from request being agreed to book arriving, and another two weeks to get back, on top of the checkout period, so even a three-month limit might still mean it spends almost no time at the lending library.

A year still seems kind of excessive, but I still suspect it has more to do with the ILL people not wanting other libraries to cut them off for too many requests.