Deborah Foreman (Sarah) and writer/director Anthony Hickox were dating during the making of Waxwork (1988). They had what Hickox describes as a "messy breakup" prior to filming Waxwork II: Lost in Time (1992), so she declined the offer to reprise her role.
The trivia item below may give away important plot points.
The ending of this film was how the original Waxwork (1988) was scripted to end, but they were over-budget and had run out of time, which is why it was hastily replaced with a massive battle sequence. Writer/director Anthony Hickox always liked the idea of the sequence and used it as the climax of this film.