Changes to a lease?

A lawyer will give you the definitive position but I think the boot of strength is with you, the former leaseholder who did the work was in breach and the freeholder could have enforced forfeiture (why didn't you do that?). This might have been muddied if the freeholder accepted intermediate transfers but I don't think that such changes can be inferrmed to be accepted. In a different but similar situation, our very large building had someone convert a large two bed into two one beds, there is an intermediate hallway their side of the front door, they also tore down all the suspended ceiling without permission and many other lease breaches. His loss, he wanted to sell but our RTM refused to recognise the seperagtion in any way and refuse to accept a transfer unless converted back.

If you haven't supplied any written permission, vague or otherwise the current owner is in breach of the lease. They have bought it accepting liability.

I don't think you're making a fuss, your reasons are sound. The new owner also knew in advance. Use a lawyer to officially state your position and that they are in breach, they should remedy immediately.
If they continue and rent to 3 or more contact planning and HMO enforcement at the council. Resend your lawyer letter.

A solicitor told me a while ago that it was 12 years, but I think there were caveats.

It sounds to me as though youre just profiteering. You don't want too many adults in the building unless they make it financially worth your while.

Over 20 years ago when this partition stud wall was erected you made no objection.
Building regulation requirements do change over the course of years and with works that were carried out +20 years ago you often find completion certificates were not even issued at that time.

Prior to 2013 there was no requirement for local authorities to issue completion certificates in all cases especially if no change of pipes or services were involved.

The building is already classed as an HMO so hopefully you have an EICR, fire risk assessment and all flats front doors conform to the Fire Safety Regs 2022 as well as having a communal fire alarm linked to each flat.

But is a "related" couple and a single person rent the 2 bedroom property then the Leasehold flat will not be classed as an HMO. More likely a couple with a child(ren)

Let us assume the subdivision of the room is a breach of the lease. As such it is a "once and for all" breach, as opposed to a continuing breach. If you (or a previous freeholder) have waived the breach then you will not be able to require the alterations to be undone.

Given that you have known about the breach for some time, the likelihood is that waiver has occurred. If you demanded or accepted ground rent or recouped insurance premiums with knowledge of the breach, that may constitute waiver. However, I would need to be instructed and to review papers to give a full answer. The cost will be more than the £500 offered. If waiver has occurred the new leaseholders do not need you to sign anything. However, they will prefer to have a written confirmation from you so it might be worth taking £500 plus your legal costs.

I should perhaps have added waiver applies to forfeiture of the lease. However, a delay of 20+ years in seeking to enforce the breach and require the leaseholder to undo the alterations is extremely unlikely to succeed.

Thank you for your very helpful comments. I have been a shared freeholder for about 6 years and a sole freeholder for about 4 years. I have only been living in the building for a year, so had no idea of the impact of the number of people going up and down the stairs before that. I knew it was a two bed from when I first became a freeholder but hadn't really bothered to enforce the lease. This was partly as I said as I hadn't realised the impact of more adults and also as an elderly and disabled couple were living in the flat with their daughter who was helping them. I didn't want to turf them out or inconvenience them for the work to be done. When they left (as they could no longer manage the stairs) a young couple moved in and they later had a baby. At that time I started to think about the lease and how the irregularity would affect the building. As they were good and quiet tenants and I started living downstairs, again I didn't want to force the issue but decided to do so when they would leave. Then, the owner of the flat went into mortgage arrears and the flat got sold in auction. It was then that I decided to enforce the lease.
If you are saying that accepting ground rent etc meant that I was 'accepting' the change then I don't have any rights here. The new owners have offered to pay for the Lease change (they are extending the very low lease in any case so this is a minor cost to be added on.) I hadn't even thought about making money out of it until they offered me the £500.
I agree that if 3 unrelated adults do occupy the flat then I can tell the local authority. I don't think the new owners will make it an HMO however, as they seem to want professional tenants and are going to refurbish the flat to a good standard. But, if I stay in the flat and continue to be the Freeholder for years down the line, and they sell it, then I may have less control over a new owner/landlord as the lease will have been changed to a two bedroom flat.