RENO, Nev. (AP) — The resort city of South Lake Tahoe says it supports implementing a new law that sets stricter occupancy limits on vacation home rentals and freezes new permits, but it’s facing a lawsuit over the voter-approved initiative.

The City Council is hopeful it will find the right balance while also holding out for a compromise that would satisfy both side of a heated debate over the rentals in residential areas, the Reno Gazette Journal reports.

The council expressed support last week for new occupancy limits and a freeze on permits while also supporting a continued delay of the occupancy limits. City officials say they’re concerned about vacationers who already booked rooms through sites such as Airbnb, HomeAway and VRBO.

Implementation of the occupancy limits is on hold after an El Dorado County Superior Court judge issued a temporary restraining order in late December, about a week after the lawsuit was filed. The new law allows no more than 12 occupants in a short-term rental, regardless of the number of rooms. Previously, the standard allowed two people per bedroom plus four additional guests.

The group behind the lawsuit, the South Lake Tahoe Property Owners Group, also asked a judge earlier this month to apply the restraining order to other parts of the law, including the freeze on new permits. The next court date is Thursday.

South Lake Tahoe, named as a defendant in the lawsuit, hasn’t revealed how it will respond to the lawsuit. During a recent closed-door meeting, some expected the City Council to decide whether to defend the new law, which it was not involved in.

South Lake Tahoe has a long history with vacation homes. Some residents decry heavier traffic in the city’s traditionally quiet neighborhoods and say the rentals are a nuisance. Others have expressed concern over the potential hit to tourism-based revenue with further restrictions on the rentals.