Auckland-founded Kiki Club launched its peer-to-peer subletting startup in New York City in 2023 with the mission of helping renters sublet their apartments while traveling for extended periods.
However, Kiki’s model violated local short-term rental laws, leading to its shutdown this past June. The New York Mayor’s Office of Special Enforcement (OSE) announced on Wednesday that Kiki has agreed to pay more than $152,000 to settle charges.
Backed by Blackbird, the Airbnb competitor aimed to simplify the subletting process and boldly promised a solution that would let users sublet their spaces for up to six months. The platform used a matching system similar to those of dating apps, connecting listers and renters based on their preferences.
However, the startup found itself on the wrong side of NYC’s short-term rental laws. Specifically, Local Law 18, which was enacted in 2022. This legislation imposes guidelines on short-term rentals, allowing them only if the host is registered with the OSE as a short-term rental host and meets additional criteria, such as staying in the same unit as the guests.
When the law was first introduced, there was an 85% drop in short-term rentals from Airbnb hosts, according to Inside Airbnb, an organization that monitors the platform’s data.
Additionally, under the law, booking services must use OSE’s verification system to confirm that hosts are either registered or exempt. Unverified transactions face a penalty of $1,500 or three times the revenue earned, whichever is lower.
According to the OSE, Kiki failed to submit quarterly reports of short-term rental transactions for eligible listings and didn’t verify nearly 400 short-term rental transactions.
“This settlement sends a clear message: If you are a company that facilitates short-term rentals, ignoring city laws will be an expensive proposition,” Christian Klossner, executive director of the OSE, said in a statement. “Kiki Club acted as a clandestine conduit for unregistered and illegal short-term rentals, directly undermining the city’s efforts to protect tenants and preserve permanent housing.”
While Kiki did not admit or deny the findings, it paid the penalties. A spokesperson for Kiki previously acknowledged in an interview with SmartCompany that the company was aware it was operating in a “gray regulatory area.”
And, despite facing such significant consequences in New York, Kiki isn’t throwing in the towel. In June, the startup announced its launch in London.
It’s important to note that the U.K. also has regulations concerning illegal renting. Renting to someone who doesn’t have the right to rent in the U.K. can lead to up to five years in prison or a hefty fine.
Hopefully, the startup learned a valuable lesson in New York so its London-based platform doesn’t meet the same fate.