Old school or new school, you are the parents!
Are you trying to "fit in" at all costs? It's as old as humans are old, there will be sex in some way at this type of arrangement, like it or not.
So... why would you allow this for YOUR children/teens? By allowing this, you CONDONE this - regardless of what you feel inside. Your actions will dictate your charactor and belief system.
This really has very little to do with your teens, to be honest. This raises more questions about your system of belief, morals and authority of your home and children. Sorry to be a Dr. Phil, but it is what it is....
If you do NOT condone sex for your teens, than it's a simply matter of "no". If you don't care about your teens having sex, than let it be a clear "yes." No waivering in between.
Personally, we would never encourage sex among teens, but hey - we're just "old school" like you said. :-)