Hw35 (probably from 1969) *update*

That seal looks healthy to me. You can soak in Neatsfoot oil and silicone chamber oil to moisten the leather if it's really dry, but that one looks good to me. If it was mine I'd keep the leather seal and apply some silicone oil and/or Neatsfoot oil without removing the seal from the piston, let it soak in and see how it shoots when put back together. I do believe there are adapters to mount a synthetic seal if you feel the need to go that direction. Is the breech seal leather as well?
I want to see the pics of the gun too-I have a mild wish to try an HW 35E someday.

This forum has a lot of knowledgeable members-http://www.network54.com/Forum/405945 You have to join to post. Try doing a search there on leather seals and reconditioning them and you should get some good info. Don't wait too long because they are changing over to a different web host and may lose some of their archived info.

I would replace it for a synthetic one, you get better compression and no need to put oil

I have a HW35 made in either 1969 or 70 according to the serial number. It's stock with leather seal and spring. After soaking the seal in synthetic oil it shoots extremely smooth with no twang or vibration. I chronied it with 8,4 jsb pellets. Extreme spread is with in 10fps and velocity averaged 685fps. It is accurate, easy to cock and shoot front porch plinker and small game hunter 40 yards and in. 
I have been told that with a synthetic seal conversion ( Vortex ) and a Macarri tune kit velocity will be in the high 700"s with 7.9 grain pellets and exceed 800 with 7 grain pellets. Mine shoots so smooth that I'm resisting making the change. With a rifle almost 50 years old I know it's going to happen sooner than later. 

Leather seals are almost indestructible with minimal care. I don't see how you can get better compression with synthetic. I say lube it up, put it back together like it is, and see how it shoots. Can you post a photo of the old timer?

Congrats...they are fine rifles.

I agree with a couple posts above. Save yourself some money and keep the leather seal.

I have a couple old HW35 rifles. One is a 1956 (Replaced both the spring and piston seal with Vortek HW35-PG2-12 tune kit.) Specs are JSB Exact Express 7.87 at 654fps_7.48fpe.
The other is 1959(Kept the original leather seal... cleaned and soaked in RWS chamber oil) Specs are JSB Exact Express 7.87gr at 726fps_9.21fpe.

Would also like to see a pic or two.

Looks like it's a survivor in great shape. Get the seal softened up and start shooting. 

Nice classic rifle! I'm a little envious. Great score!

What a beauty. I like the rounded pistol grip and Bavarian style stock.
Here is one of mine after a little TLC.

I love old HW35s!