The Warilla Child Care Centre is set for a short-term reprieve with Land and Housing Corp offering to extend Shellharbour City Council's peppercorn rent of $1 for a further 12 months.
In May, Housing NSW told the council it would be seeking market rental for the property on the corner of King and Harvey streets, Warilla, with a council valuation of $40,000 a year on the premises.
In June, Shellharbour City Council staff recommended the centre be closed at the end of 2014 if an alternative service provider could not be found to operate the centre because the additional rent would put the council's annual subsidy for the centre up to $200,000.
Shellharbour council has operated the Warilla centre since 1976 and the centre is licensed to cater for 40 children a day.
On Tuesday night, Shellharbour councillors will be presented with a 12-page report containing three options for the future of the centre.
However, council staff say two of the options, which are to continue to run the centre or build a new childcare centre elsewhere, are not viable.
That leaves a third option, which is to accept the 12-month "peppercorn" rent and to continue the search for an alternative childcare provider. If one cannot be found, the centre would close in December 2015.
Councillor Kellie Marsh said though the 12-month reprieve would come as some relief, she wanted the council to retain the centre, which provided a valuable service in one of Shellharbour's most disadvantaged suburbs.
Cr Marsh believed building a new centre was viable, particularly if it could be co-located with a new Warilla Library on which the council has $2 million to spend.
"I think we could look at a centre that not only looks after children 0-5, but incorporates after school care as well," Cr Marsh said.
"I am looking forward to hearing what families who use the centre have to say on Tuesday night," she said.
Shellharbour MP Anna Watson said she was pleased that a short-term resolution had been found.
"Hopefully, the leasing arrangements for the long-term operation of the Warilla Child Care Centre can be negotiated and resolved, which will come as a source of relief for local families in the Warilla area," Ms Watson said.
Marisa Wheatley, whose children Ethan, 3, and Ella, 20 months, attend the centre, said the move was a step in the right direction.
"We're really happy that the peppercorn lease has been renewed for another year," she said. "But the fact that they are going to close next December should they not find another provider to operate the centre is not satisfactory."