Hi Ayaz,
#@# BA Labels lh Fri May 27 21:47:56 CDT 2011 INFO: fsaverage subject does not exist in SUBJECTS_DIR INFO: Creating symlink to fsaverage subject...
ln -s /usr/local/freesurfer/subjects/fsaverage /usr/local/subjects/fsaverage
ln: creating symbolic link `/usr/local/subjects/fsaverage': Permission denied
you have to create this symbolic link. It seems that you do not have the write permission to the $SUBJECTS_DIR?!
Best, Joerg