SQLServer dialect issue with native sql when setLimit() is present. After investigating it is found that Hibernate is expecting a space after select keyword. That means if query has a newline (enter) after the select keyword. we see the below exception.

query that creates the below exception:
select

• from employee e where e.first_name = :firstName

exception:

May 11, 2016 11:08:45 AM org.hibernate.hql.internal.ast.ASTQueryTranslatorFactory <init>
INFO: HHH000397: Using ASTQueryTranslatorFactory
Hibernate: selec TOP(?)t

• from employee e where e.first_name = ?
  May 11, 2016 11:08:46 AM org.hibernate.engine.jdbc.spi.SqlExceptionHelper logExceptions
  WARN: SQL Error: 156, SQLState: S0001
  May 11, 2016 11:08:46 AM org.hibernate.engine.jdbc.spi.SqlExceptionHelper logExceptions
  ERROR: Incorrect syntax near the keyword 'TOP'.
  could not extract ResultSet
  org.hibernate.exception.SQLGrammarException: could not extract ResultSet
  at org.hibernate.exception.internal.SQLStateConversionDelegate.convert(SQLStateConversionDelegate.java:123)
  at org.hibernate.exception.internal.StandardSQLExceptionConverter.convert(StandardSQLExceptionConverter.java:49)
  at org.hibernate.engine.jdbc.spi.SqlExceptionHelper.convert(SqlExceptionHelper.java:126)
  at org.hibernate.engine.jdbc.spi.SqlExceptionHelper.convert(SqlExceptionHelper.java:112)
  at org.hibernate.engine.jdbc.internal.ResultSetReturnImpl.extract(ResultSetReturnImpl.java:91)
  at org.hibernate.loader.Loader.getResultSet(Loader.java:2066)
  at org.hibernate.loader.Loader.executeQueryStatement(Loader.java:1863)
  at org.hibernate.loader.Loader.executeQueryStatement(Loader.java:1839)
  at org.hibernate.loader.Loader.doQuery(Loader.java:910)
  at org.hibernate.loader.Loader.doQueryAndInitializeNonLazyCollections(Loader.java:355)
  at org.hibernate.loader.Loader.doList(Loader.java:2554)
  at org.hibernate.loader.Loader.doList(Loader.java:2540)
  at org.hibernate.loader.Loader.listIgnoreQueryCache(Loader.java:2370)
  at org.hibernate.loader.Loader.list(Loader.java:2365)
  at org.hibernate.loader.custom.CustomLoader.list(CustomLoader.java:353)
  at org.hibernate.internal.SessionImpl.listCustomQuery(SessionImpl.java:1909)
  at org.hibernate.internal.AbstractSessionImpl.list(AbstractSessionImpl.java:311)
  at org.hibernate.internal.SQLQueryImpl.list(SQLQueryImpl.java:141)
  at hibernate.test.QueryTest.main(QueryTest.java:101)
  Caused by: com.microsoft.sqlserver.jdbc.SQLServerException: Incorrect syntax near the keyword 'TOP'.
  at com.microsoft.sqlserver.jdbc.SQLServerException.makeFromDatabaseError(SQLServerException.java:196)
  at com.microsoft.sqlserver.jdbc.SQLServerStatement.getNextResult(SQLServerStatement.java:1454)
  at com.microsoft.sqlserver.jdbc.SQLServerPreparedStatement.doExecutePreparedStatement(SQLServerPreparedStatement.java:388)
  at com.microsoft.sqlserver.jdbc.SQLServerPreparedStatement$PrepStmtExecCmd.doExecute(SQLServerPreparedStatement.java:338)
  at com.microsoft.sqlserver.jdbc.TDSCommand.execute(IOBuffer.java:4026)
  at com.microsoft.sqlserver.jdbc.SQLServerConnection.executeCommand(SQLServerConnection.java:1416)
  at com.microsoft.sqlserver.jdbc.SQLServerStatement.executeCommand(SQLServerStatement.java:185)
  at com.microsoft.sqlserver.jdbc.SQLServerStatement.executeStatement(SQLServerStatement.java:160)
  at com.microsoft.sqlserver.jdbc.SQLServerPreparedStatement.executeQuery(SQLServerPreparedStatement.java:281)
  at org.hibernate.engine.jdbc.internal.ResultSetReturnImpl.extract(ResultSetReturnImpl.java:82)
  ... 14 more

I have also check for the below query and it fails with the same above exception.
select
1

Attaching the test case to reproduce the issue.