NYC fines subletting startup Kiki $152K for short-term rental law violations

Navigating the complex world of short-term rental regulations in New York City proved to be a costly challenge for Kiki Club, a peer-to-peer subletting platform that launched in the city last year. Originating in Auckland, the startup entered the competitive market with a mission to assist residents in subletting their apartments during extended travel periods. Its innovative approach, backed by investor Blackbird, positioned it as a fresh alternative to established players like Airbnb. The company promised to streamline the subletting process, even introducing a unique matching system reminiscent of dating apps to pair listers with potential renters for stays lasting up to six months.

Despite its ambitious goals, Kiki’s operational model soon clashed with NYC’s stringent short-term rental laws. Specifically, the platform ran afoul of Local Law 18, a set of regulations enacted in 2022 that imposes rigorous requirements on hosts and booking services. Under this law, hosts must register with the Mayor’s Office of Special Enforcement and must physically remain in the same unit as their guests during the rental period. The legislation also mandates that booking platforms use the city’s official verification system to confirm each host’s registration status or exemption. Failure to comply can result in penalties of $1,500 or three times the transaction revenue, whichever amount is lower.

The impact of Local Law 18 has been significant across the short-term rental landscape. According to data from Inside Airbnb, the number of available rentals plummeted by approximately 85% after the law took effect, as many hosts found the new rules too burdensome to follow. For Kiki, the consequences were direct and severe. Officials from the OSE determined that the startup failed to submit required quarterly reports detailing its short-term rental transactions and neglected to verify close to 400 individual bookings. These omissions led to a settlement in which Kiki agreed to pay over $152,000 in penalties.

Christian Klossner, the OSE’s executive director, emphasized the importance of the settlement in a public statement. He described Kiki Club as operating like a “clandestine conduit” for unregistered and illegal rentals, directly opposing the city’s initiatives to safeguard tenants and maintain the availability of permanent housing. While Kiki did not formally admit to or dispute the findings, the company fulfilled its financial obligations. In previous comments to SmartCompany, a Kiki spokesperson had acknowledged operating in what they termed a “gray regulatory area,” indicating some awareness of the legal ambiguities they faced.

Even after this substantial financial penalty and the subsequent shutdown of its New York operations in June, Kiki is not retreating from the market entirely. The company recently announced its expansion into London, signaling a continued belief in its business model. However, the United Kingdom enforces its own strict rules regarding illegal rentals. Landlords there face severe consequences, including potential prison sentences of up to five years or significant fines, for renting to individuals without the proper legal status. Whether Kiki has absorbed critical lessons from its New York experience remains to be seen, as its future in London could hinge on carefully adhering to local regulations from the outset.

(Source: TechCrunch)